21) Siegrist Products, Inc., has a Pump Division that manufactures and sells a number of
products, including a standard pump that could be used by another division in the company, the
Pool Products Division, in one of its products. Data concerning that pump appear below:
Capacity in units
83,000
Selling price to outside customers
$
60
Variable cost per unit
$
36
Fixed cost per unit (based on capacity)
$
11
–
The Pool Products Division is currently purchasing 12,000 of these pumps per year from an
overseas supplier at a cost of $54 per pump.
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products
Division’s needs. What should be the minimum acceptable transfer price for the pumps from the
standpoint of the Pump Division?
A) $47 per unit
B) $60 per unit
C) $36 per unit
D) $54 per unit
22) Division C makes a part that it sells to customers outside of the company. Data concerning
this part appear below:
Selling price to outside customers
$
75
Variable cost per unit
$
54
Total fixed costs
$
150,000
Capacity in units
10,000
–
Division D of the same company would like to use the part manufactured by Division C in one of
its products. Division D currently purchases a similar part made by an outside company for $79
per unit and would substitute the part made by Division C. Division D requires 1,000 units of the
part each period. Division C has ample excess capacity to handle all of Division D’s needs
without any increase in fixed costs and without cutting into outside sales. What is the lowest
acceptable transfer price from the standpoint of the selling division?
A) $75
B) $79
C) $54
D) $69
23) The Parts Division of Nydron Corporation makes Part Y6P, which it sells to outside
companies for $17.00 per unit. According to the cost accounting system, the costs of making one
unit of Part Y6P consist of $7.00 for direct materials, $3.00 for direct labor, $4.50 for variable
manufacturing overhead, and $1.20 for fixed manufacturing overhead. The Parts Division has
enough idle capacity to make 1,000 units of Part Y6P each month. The Assembly Division of
Nydron Corporation can use Part Y6P in one of its products. At present, the Assembly Division
is purchasing an equivalent part from an outside supplier for $16.85 per unit. The Assembly
Division needs 2,000 units of the part each month. It has been suggested that the Assembly
Division buy Part Y6P from the Parts Division instead of buying the equivalent part from the
outside supplier. The transfer price for this transaction would lie within what limits?
A) equal to or greater than $15.75 and less than or equal to $16.85
B) equal to or greater than $15.70 and less than or equal to $17.00
C) equal to or greater than $14.50 and less than or equal to $17.00
D) equal to or greater than $14.50 and less than or equal to $16.85
24) Koppenhaver Products, Inc., has a Relay Division that manufactures and sells a number of
products, including a standard relay that could be used by another division in the company, the
Electronics Division, in one of its products. Data concerning that relay appear below:
Capacity in units
86,000
Selling price to outside customers
$
63
Variable cost per unit
$
41
Fixed cost per unit (based on capacity)
$
10
–
The Electronics Division is currently purchasing 15,000 of these relays per year from an
overseas supplier at a cost of $57 per relay.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $10 in variable expenses can be avoided on transfers within the company due
to reduced shipping and selling costs. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $57 per unit
B) $41 per unit
C) $53 per unit
D) $63 per unit
25) Division R of Harris Corporation has the capacity for making 40,000 wheel sets per year and
regularly sells 36,000 each year on the outside market. The regular selling price on the outside
market is $89 per wheel set, and the variable production cost per unit is $56. Division S of Harris
Corporation currently buys 6,000 wheel sets (of the kind made by Division R) yearly from an
outside supplier at a price of $85 per wheel set. If Division S were to buy the 6,000 wheel sets it
needs annually from Division R at $83 per wheel set, the change in annual net operating income
for the company as a whole, compared to what it is currently, would be:
A) $108,000
B) $174,000
C) $162,000
D) $96,000
26) Tron Products, Inc., has a Pump Division that manufactures and sells a number of products,
including a standard pump that could be used by another division in the company, the Pool
Products Division, in one of its products. Data concerning that pump appear below:
Capacity in units
81,000
Selling price to outside customers
$
98
Variable cost per unit
$
51
Fixed cost per unit (based on capacity)
$
27
–
The Pool Products Division is currently purchasing 4,000 of these pumps per year from an
overseas supplier at a cost of $94 per pump.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $3 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Valve and Pump Division financially better off than if the Pump Division were to continue
buying its valves from the outside supplier?
A) The answer cannot be determined from the information that has been provided.
B) No, the minimum transfer price that the selling division should be willing to accept exceeds
the maximum transfer price that the buying division would accept.
C) Yes, both divisions are always better off regardless of whether the selling division has enough
idle capacity to handle all of the buying division’s needs.
D) Yes, the minimum transfer price that the selling division should be willing to accept is less
than the maximum transfer price that the buying division would accept.
27) Rohrer Products, Inc., has a Motor Division that manufactures and sells a number of
products, including a standard motor that could be used by another division in the company, the
Automotive Division, in one of its products. Data concerning that motor appear below:
Capacity in units
56,000
Selling price to outside customers
$
95
Variable cost per unit
$
41
Fixed cost per unit (based on capacity)
$
24
–
The Automotive Division is currently purchasing 10,000 of these motors per year from an
overseas supplier at a cost of $88 per motor.
Assume that the Motor Division has enough idle capacity to handle all of the Automotive
Division’s needs. What should be the minimum acceptable transfer price for the motors from the
standpoint of the Motor Division?
A) $65 per unit
B) $88 per unit
C) $41 per unit
D) $95 per unit
28) Ricardo Products, Inc., has a Motor Division that manufactures and sells a number of
products, including a standard motor. Data concerning that motor appear below:
Capacity in units
87,000
Selling price to outside customers
$
57
Variable cost per unit
$
30
Fixed cost per unit (based on capacity)
$
19
–
The Automotive Division of Ricardo Products, Inc needs 10,000 special heavy-duty motors per
year. The Motor Division’s variable cost to manufacture and ship this special motor would be
$35 per unit. Because these special motors would requires more manufacturing resources than
the standard motor, the Motor Division would have to reduce its production and sales of standard
motors to outside customers from 87,000 units per year to 69,000 units per year.
What is the total contribution margin on sales to outside customers that the Motor Division
would give up if it were to make the special motors for the Automotive Division?
A) $486,000
B) $874,800
C) $1,026,000
D) $270,000
Selling price to outside customers
$
Variable cost per unit
$
Unit contribution margin
$
Reduction in outside unit sales
Total contribution margin on lost sales
$
486,000
–
29) Delemos Products, Inc., has a Transmitter Division that manufactures and sells a number of
products, including a standard transmitter. Data concerning that transmitter appear below:
Capacity in units
83,000
Selling price to outside customers
$
98
Variable cost per unit
$
60
Fixed cost per unit (based on capacity)
$
24
–
The Remote Devices Division of Delemos Products, Inc needs 6,000 special heavy-duty
transmitters per year. The Transmitter Division’s variable cost to manufacture and ship this
special transmitter would be $66 per unit. Because these special transmitters require more
manufacturing resources than the standard transmitter, the Transmitter Division would have to
reduce its production and sales of standard transmitters to outside customers from 83,000 units
per year to 76,400 units per year.
From the standpoint of the Transmitter Division, what is the minimal acceptable transfer price
for the special transmitters for the Remote Devices Division?
A) $90.00 per unit
B) $98.00 per unit
C) $104.00 per unit
D) $107.80 per unit
30) Fois Company has two divisions, Division X and Division Y. Division X has a production
capacity of 5,000 units of a particular part per month. Division X sells 4,400 units of the part
each month to outside customers at a contribution margin of $56 per unit. Division Y would like
to buy 800 units of the part each month from Division X. In computing the lowest acceptable
transfer price from the perspective of the selling division, the lost contribution margin per unit
portion of the transfer price computation would be:
A) $56.00 per unit
B) $30.00 per unit
C) $14.00 per unit
D) $25.00 per unit
31) Wamsley Products, Inc., has a Transmitter Division that manufactures and sells a number of
products, including a standard transmitter that could be used by another division in the company,
the Remote Devices Division, in one of its products. Data concerning that transmitter appear
below:
Capacity in units
60,000
Selling price to outside customers
$
64
Variable cost per unit
$
27
Fixed cost per unit (based on capacity)
$
17
–
The Remote Devices Division is currently purchasing 8,000 of these transmitters per year from
an overseas supplier at a cost of $61 per transmitter.
Assume that the Transmitter Division is selling all of the transmitters it can produce to outside
customers. What should be the minimum acceptable transfer price for the transmitters from the
standpoint of the Transmitter Division?
A) $44 per unit
B) $27 per unit
C) $64 per unit
D) $61 per unit
32) Leneau Products, Inc., has a Connector Division that manufactures and sells a number of
products, including a standard connector that could be used by another division in the company,
the Transmission Division, in one of its products. Data concerning that connector appear below:
Capacity in units
65,000
Selling price to outside customers
$
56
Variable cost per unit
$
25
Fixed cost per unit (based on capacity)
$
23
–
The Transmission Division is currently purchasing 12,000 of these connectors per year from an
overseas supplier at a cost of $52 per connector.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $5 in variable expenses can be avoided on transfers within the company due to
reduced shipping and selling costs. Does there exist a transfer price that would make both the
Valve and Pump Division financially better off than if the Pump Division were to continue
buying its valves from the outside supplier?
A) Yes, the minimum transfer price that the selling division should be willing to accept is less
than the maximum transfer price that the buying division would accept. Both divisions would be
financially better off if the transfers were to take place.
B) Yes, both divisions are always better off regardless of whether the selling division has enough
idle capacity to handle all of the buying division’s needs.
C) No, the selling division’s price to outside customers is higher than the price that the buying
division has to pay its outside supplier.
D) The answer cannot be determined from the information that has been provided.
33) Wigelsworth Products, Inc., has a Sensor Division that manufactures and sells a number of
products, including a standard sensor. Data concerning that sensor appear below:
Capacity in units
89,000
Selling price to outside customers
$
67
Variable cost per unit
$
30
Fixed cost per unit (based on capacity)
$
28
–
The Safety Products Division of Wigelsworth Products, Inc needs 6,000 special heavy-duty
sensors per year. The Sensor Division’s variable cost to manufacture and ship this special sensor
would be $32 per unit. Because these special sensors require more manufacturing resources than
the standard sensor, the Sensor Division would have to reduce its production and sales of
standard sensors to outside customers from 89,000 units per year to 79,400 units per year.
From the standpoint of the Sensor Division, what is the minimal acceptable transfer price for the
special sensors for the Safety Products Division?
A) $60.00 per unit
B) $67.00 per unit
C) $69.00 per unit
D) $91.20 per unit
