Exam 26: Transfer Pricing

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: 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?

(Appendix 11A) Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow: Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $38 per unit. If Division A sells to Division B, $1 in variable costs can be avoided. -Assume that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into outside sales.According to the formula in the text,what is the lowest acceptable transfer price from the viewpoint of the selling division?

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: 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?

(Appendix 11A) Fingado 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: The Commercial Security Division is currently purchasing 6,000 of these detectors per year from an overseas supplier at a cost of $91 per detector. -What is the maximum price that the Commercial Security Division should be willing to pay for detectors transferred from the Detector Division?

(Appendix 11A) Zeilinger Products, Inc., has a Screen Division that manufactures and sells a number of products, including a standard screen that could be used by another division in the company, the Home Security Division, in one of its products. Data concerning that screen appear below: The Home Security Division is currently purchasing 8,000 of these screens per year from an overseas supplier at a cost of $58 per screen. -What is the maximum price that the Home Security Division should be willing to pay for screens transferred from the Screen Division?

(Appendix 11A) Zeilinger Products, Inc., has a Screen Division that manufactures and sells a number of products, including a standard screen that could be used by another division in the company, the Home Security Division, in one of its products. Data concerning that screen appear below: The Home Security Division is currently purchasing 8,000 of these screens per year from an overseas supplier at a cost of $58 per screen. -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?

(Appendix 11A) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics Division and the Components Division. The Plastics Division sells molded parts to both the Components Division and to customers outside the corporation. -Assume that the Plastics Division is currently operating with idle capacity.Also assume that the Components Division wants to purchase from Plastics all of the additional parts that could be made with this idle capacity.In order to increase its current level of profitability,the Plastics Division should accept any transfer price on these additional parts that is above the:

(Appendix 11A) Ebbs Products, Inc., has a Motor Division that manufactures and sells a number of products, including a standard motor. Data concerning that motor appear below: The Automotive Division of Ebbs Products, Inc needs 9,000 special heavy-duty motors per year. The Motor Division's variable cost to manufacture and ship this special motor would be $46 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 86,000 units per year to 72,500 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?

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: 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?

(Appendix 11A) 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: 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?

Nanke 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: The Safety Products Division is currently purchasing 3,000 of these sensors per year from an overseas supplier at a cost of $59 per sensor. Assume that the Sensor Division is selling all of the sensors it can produce to outside customers.What should be the minimum acceptable transfer price for the sensors from the standpoint of the Sensor Division?

Division C makes a part that it sells to customers outside of the company.Data concerning this part appear below: 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.According to the formula in the text,what is the lowest acceptable transfer price from the standpoint of the selling division?

(Appendix 11A) 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: 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?

(Appendix 11A) 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: 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?

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: 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?

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: 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 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 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?

Whenever the selling division must give up outside sales in order to sell internally,it has an opportunity cost that should be considered in setting the transfer price.

Blitch Products,Inc.,has a Screen Division that manufactures and sells a number of products,including a standard screen that could be used by another division in the company,the Home Security Division,in one of its products.Data concerning that screen appear below: The Home Security Division is currently purchasing 2,000 of these screens per year from an overseas supplier at a cost of $50 per screen. Assume that the Screen Division has enough idle capacity to handle all of the Home Security Division's needs.Does there exist a transfer price that would make both the Screen and Home Security Division financially better off than if the Home Security Division were to continue buying its screens from the outside supplier?

Division Y has asked Division X of the same company to supply it with 5,000 units of part L763 this year to use in one of its products.Division Y has received a bid from an outside supplier for the parts at a price of $33.00 per unit.Division X has the capacity to produce 20,000 units of part L763 per year.Division X expects to sell 18,000 units of part L763 to outside customers this year at a price of $34.00 per unit.To fill the order from Division Y,Division X would have to cut back its sales to outside customers.Division X produces part L763 at a variable cost of $25.00 per unit.The cost of packing and shipping the parts for outside customers is $2.00 per unit.These packing and shipping costs would not have to be incurred on sales of the parts to Division Y. Required: a.What is the range of transfer prices within which both the Divisions' profits would increase as a result of agreeing to the transfer of 5,000 parts this year from Division Y to Division X? b.Is it in the best interests of the overall company for this transfer to take place? Explain.

(Appendix 11A) 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: 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?