34) Meers Products, Inc., has a Detector Division that manufactures and sells a number of
products, including a standard detector that could be used by another division in the company,
the Commercial Security Division, in one of its products. Data concerning that detector appear
below:
Capacity in units
43,000
Selling price to outside customers
$
98
Variable cost per unit
$
39
Fixed cost per unit (based on capacity)
$
40
–
The Commercial Security Division is currently purchasing 7,000 of these detectors per year from
an overseas supplier at a cost of $93 per detector.
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) $133,000
B) $469,000
C) $2,537,000
D) $413,000
Selling price to outside customers
$
Variable cost per unit
$
Unit contribution margin
$
Reduction in outside unit sales
Total contribution margin on lost sales
$
413,000
–
35) Cichy 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
80,000
Selling price to outside customers
$
90
Variable cost per unit
$
37
Fixed cost per unit (based on capacity)
$
32
–
The Pump Division is currently purchasing 5,000 of these valves per year from an overseas
supplier at a cost of $85 per valve.
What is the maximum price that the Pump Division should be willing to pay for valves
transferred from the Valve Division?
A) $37 per unit
B) $85 per unit
C) $32 per unit
D) $69 per unit
36) Stokan Products, Inc., has a Antennae Division that manufactures and sells a number of
products, including a standard antennae that could be used by another division in the company,
the Aircraft Products Division, in one of its products. Data concerning that antennae appear
below:
Capacity in units
86,000
Selling price to outside customers
$
63
Variable cost per unit
$
22
Fixed cost per unit (based on capacity)
$
18
–
The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an
overseas supplier at a cost of $57 per antennae.
What is the maximum price that the Aircraft Products Division should be willing to pay for
antennaes transferred from the Antennae Division?
A) $22 per unit
B) $57 per unit
C) $18 per unit
D) $40 per unit
37) Stokan Products, Inc., has a Antennae Division that manufactures and sells a number of
products, including a standard antennae that could be used by another division in the company,
the Aircraft Products Division, in one of its products. Data concerning that antennae appear
below:
Capacity in units
86,000
Selling price to outside customers
$
63
Variable cost per unit
$
22
Fixed cost per unit (based on capacity)
$
18
–
The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an
overseas supplier at a cost of $57 per antennae.
Assume that the Antennae Division is selling all of the antennaes it can produce to outside
customers. What should be the minimum acceptable transfer price for the antennaes from the
standpoint of the Antennae Division?
A) $40 per unit
B) $63 per unit
C) $57 per unit
D) $22 per unit
38) Stokan Products, Inc., has a Antennae Division that manufactures and sells a number of
products, including a standard antennae that could be used by another division in the company,
the Aircraft Products Division, in one of its products. Data concerning that antennae appear
below:
Capacity in units
86,000
Selling price to outside customers
$
63
Variable cost per unit
$
22
Fixed cost per unit (based on capacity)
$
18
–
The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an
overseas supplier at a cost of $57 per antennae.
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
Also assume that $7 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) $33 per unit
B) $63 per unit
C) $56 per unit
D) $57 per unit
39) Division S of Kracker Company makes a part that it sells to other companies. Data on that
part appear below:
Selling price on the intermediate market
30
per unit
Variable costs per unit
22
per unit
Fixed costs per unit (based on capacity)
7
per unit
Capacity in units
50,000
units
–
Division B, another division of Kracker Company, presently is purchasing 10,000 units of a
similar product each period from an outside supplier for $28 per unit, but would like to begin
purchasing from Division S.
Suppose that Division S has ample idle capacity to handle all of Division B’s needs without any
increase in fixed costs or cutting into sales to outside customers. If Division S refuses to accept a
transfer price of $28 or less and Division B continues to buy from the outside supplier, the
company as a whole will:
A) gain $20,000 in potential profit.
B) lose $60,000 in potential profit.
C) lose $70,000 in potential profit.
D) lose $20,000 in potential profit.
40) Division S of Kracker Company makes a part that it sells to other companies. Data on that
part appear below:
Selling price on the intermediate market
30
per unit
Variable costs per unit
22
per unit
Fixed costs per unit (based on capacity)
7
per unit
Capacity in units
50,000
units
–
Division B, another division of Kracker Company, presently is purchasing 10,000 units of a
similar product each period from an outside supplier for $28 per unit, but would like to begin
purchasing from Division S.
Suppose that Division S can sell all that it can produce to outside customers. If Division S sells
to Division B at a price of $28 per unit, the company as a whole will be:
A) worse off by $80,000 each period.
B) worse off by $70,000 each period.
C) better off by $20,000 each period.
D) worse off by $20,000 each period.
41) Bacot 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
60,000
Selling price to outside customers
$
53
Variable cost per unit
$
28
Fixed cost per unit (based on capacity)
$
17
–
The Pump Division is currently purchasing 8,000 of these valves per year from an overseas
supplier at a cost of $47 per valve.
What is the maximum price that the Pump Division should be willing to pay for valves
transferred from the Valve Division?
A) $45 per unit
B) $28 per unit
C) $47 per unit
D) $17 per unit
42) Bacot 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
60,000
Selling price to outside customers
$
53
Variable cost per unit
$
28
Fixed cost per unit (based on capacity)
$
17
–
Assume that the Valve Division has enough idle capacity to handle all of the Pump Division’s
needs. What should be the minimum acceptable transfer price for the valves from the standpoint
of the Valve Division?
A) $45 per unit
B) $28 per unit
C) $47 per unit
D) $53 per unit
43) Bacot 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
60,000
Selling price to outside customers
$
53
Variable cost per unit
$
28
Fixed cost per unit (based on capacity)
$
17
–
Assume that the Valve Division is selling all of the valves it can produce to outside customers.
What should be the minimum acceptable transfer price for the valves from the standpoint of the
Valve Division?
A) $47 per unit
B) $28 per unit
C) $45 per unit
D) $53 per unit
44) Brull 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
56,000
Selling price to outside customers
$
75
Variable cost per unit
$
52
Fixed cost per unit (based on capacity)
$
17
–
The Safety Products Division of Brull 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
$60 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 56,000 units per year to 46,400 units per year.
What is the total contribution margin on sales to outside customers that the Sensor Division
would give up if it were to make the special sensors for the Safety Products Division?
A) $720,000
B) $353,280
C) $220,800
D) $138,000
Selling price to outside customers
$
Variable cost per unit
$
Unit contribution margin
$
Reduction in outside unit sales
Total contribution margin on lost sales
$
220,800
–
45) Brull 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
56,000
Selling price to outside customers
$
75
Variable cost per unit
$
52
Fixed cost per unit (based on capacity)
$
17
–
The Safety Products Division of Brull 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
$60 per unit. Because these special sensors would requires 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 56,000 units per year to 46,400 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) $75.00 per unit
B) $77.00 per unit
C) $83.00 per unit
D) $96.80 per unit
46) Germano 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
65,000
Selling price to outside customers
$
98
Variable cost per unit
$
36
Fixed cost per unit (based on capacity)
$
44
–
The Pool Products Division is currently purchasing 10,000 of these pumps per year from an
overseas supplier at a cost of $94 per pump.
Assume that the Pump Division has enough idle capacity to handle all of the Pool Products
Division’s needs. Does there exist a transfer price that would make both the Pump and Pool
Products Division financially better off than if the Pool Products Division were to continue
buying its pumps from the outside supplier?
A) 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.
B) 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.
C) The answer cannot be determined from the information that has been provided.
D) No, the selling division’s price to outside customers is higher than the price that the buying
division has to pay its outside supplier.