77) Yearout Products, Inc., has a Valve Division that manufactures and sells a number of
products, including a standard valve that could be used by another division in the company, the
Pump Division, in one of its products. Data concerning that valve appear below:
Capacity in units
58,000
Selling price to outside customers
$
59
Variable cost per unit
$
40
Fixed cost per unit (based on capacity)
$
11
–
The Pump Division is currently purchasing 9,000 of these valves per year from an overseas
supplier at a cost of $53 per valve.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
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 should be willing to accept.
B) No, the minimum transfer price that the selling division should be willing to accept exceeds
the maximum transfer price that the buying division should be willing to accept.
C) The answer cannot be determined from the information that has been provided.
D) 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.
78) Yearout Products, Inc., has a Valve Division that manufactures and sells a number of
products, including a standard valve that could be used by another division in the company, the
Pump Division, in one of its products. Data concerning that valve appear below:
Capacity in units
58,000
Selling price to outside customers
$
59
Variable cost per unit
$
40
Fixed cost per unit (based on capacity)
$
11
–
The Pump Division is currently purchasing 9,000 of these valves per year from an overseas
supplier at a cost of $53 per valve.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $1 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.
B) The answer cannot be determined from the information that has been provided.
C) 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.
D) 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.
79) Ahart 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
79,000
Selling price to outside customers
$
61
Variable cost per unit
$
42
Fixed cost per unit (based on capacity)
$
8
–
The Remote Devices Division is currently purchasing 4,000 of these transmitters per year from
an overseas supplier at a cost of $59 per transmitter.
What is the maximum price that the Remote Devices Division should be willing to pay for
transmitters transferred from the Transmitter Division?
A) $8 per unit
B) $50 per unit
C) $59 per unit
D) $42 per unit
80) Ahart 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
79,000
Selling price to outside customers
$
61
Variable cost per unit
$
42
Fixed cost per unit (based on capacity)
$
8
–
The Remote Devices Division is currently purchasing 4,000 of these transmitters per year from
an overseas supplier at a cost of $59 per transmitter.
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. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $59 per unit
B) $61 per unit
C) $47 per unit
D) $58 per unit
81) Steinhoff Products, Inc., has a Sensor Division that manufactures and sells a number of
products, including a standard sensor that could be used by another division in the company, the
Safety Products Division, in one of its products. Data concerning that sensor appear below:
Capacity in units
51,000
Selling price to outside customers
$
56
Variable cost per unit
$
37
Fixed cost per unit (based on capacity)
$
14
–
The Safety Products Division is currently purchasing 4,000 of these sensors per year from an
overseas supplier at a cost of $48 per sensor.
What is the maximum price that the Safety Products Division should be willing to pay for
sensors transferred from the Sensor Division?
A) $51 per unit
B) $37 per unit
C) $48 per unit
D) $14 per unit
82) Steinhoff Products, Inc., has a Sensor Division that manufactures and sells a number of
products, including a standard sensor that could be used by another division in the company, the
Safety Products Division, in one of its products. Data concerning that sensor appear below:
Capacity in units
51,000
Selling price to outside customers
$
56
Variable cost per unit
$
37
Fixed cost per unit (based on capacity)
$
14
–
The Safety Products Division is currently purchasing 4,000 of these sensors per year from an
overseas supplier at a cost of $48 per sensor.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
From the standpoint of the Valve Division, what is the lost contribution margin if the valves are
transferred internally rather than sold to outside customers?
A) $76,000
B) $969,000
C) $120,000
D) $20,000
Selling price to outside customers
$
56
Variable cost per unit
$
37
Unit contribution margin
$
19
Reduction in outside unit sales
Total contribution margin on lost sales
$
76,000
–
83) Wetherald 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
55,000
Selling price to outside customers
$
82
Variable cost per unit
$
53
Fixed cost per unit (based on capacity)
$
11
–
The Pool Products Division is currently purchasing 4,000 of these pumps per year from an
overseas supplier at a cost of $74 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) $74 per unit
B) $53 per unit
C) $64 per unit
D) $82 per unit
84) Wetherald 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
55,000
Selling price to outside customers
$
82
Variable cost per unit
$
53
Fixed cost per unit (based on capacity)
$
11
–
The Pool Products Division is currently purchasing 4,000 of these pumps per year from an
overseas supplier at a cost of $74 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers.
What should be the minimum acceptable transfer price for the pumps from the standpoint of the
Pump Division?
A) $64 per unit
B) $74 per unit
C) $82 per unit
D) $53 per unit
85) Wetherald 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
55,000
Selling price to outside customers
$
82
Variable cost per unit
$
53
Fixed cost per unit (based on capacity)
$
11
–
The Pool Products Division is currently purchasing 4,000 of these pumps per year from an
overseas supplier at a cost of $74 per pump.
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. What should be the minimum acceptable transfer price for
the valves from the standpoint of the Valve Division?
A) $77 per unit
B) $74 per unit
C) $59 per unit
D) $82 per unit
116
86) Creaser 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
42,000
Selling price to outside customers
$85
Variable cost per unit
$50
Fixed cost per unit (based on capacity)
$28
The company has a Safety Products Division that could use this sensor in one of its products.
The Safety Products Division is currently purchasing 8,000 of these sensors per year from an
overseas supplier at a cost of $76 per sensor.
Required:
The Sensor Division is selling all of the sensors 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 is the acceptable range, if any, for the transfer price
between the two divisions?
87) Cominsky Products, Inc., has a Screen Division that manufactures and sells a number of
products, including a standard screen. Data concerning that screen appear below:
Capacity in units
74,000
Selling price to outside customers
$98
Variable cost per unit
$61
Fixed cost per unit (based on capacity)
$14
The company has a Home Security Division that could use this screen in one of its products. The
Home Security Division is currently purchasing 6,000 of these screens per year from an overseas
supplier at a cost of $96 per screen.
Required:
Assume that the Screen Division is selling all of the screens it can produce to outside customers.
What is the acceptable range, if any, for the transfer price between the two divisions?
Selling price to outside customers
Variable cost per unit
Unit contribution margin
Reduction in outside unit sales
Total contribution margin on lost sales
119
88) Gauani Products, Inc., has a Detector Division that manufactures and sells a number of
products, including a standard detector. Data concerning that detector appear below:
Capacity in units
51,000
Selling price to outside customers
$72
Variable cost per unit
$35
Fixed cost per unit (based on capacity)
$17
The company has a Commercial Security Division that could use this detector in one of its
products. The Commercial Security Division is currently purchasing 5,000 of these detectors per
year from an overseas supplier at a cost of $65 per detector.
Required:
a. Assume that the Detector Division has enough idle capacity to handle all of the Commercial
Security Division’s needs. What is the acceptable range, if any, for the transfer price between the
two divisions?
b. Assume that the Detector Division is selling all of the detectors it can produce to outside
customers. What is the acceptable range, if any, for the transfer price between the two divisions?
