Exercises
15-18. Evaluate transfer Pricing System
Mississippi Company has two, decentralized divisions Illinois and Iowa.? Illinois always has purchased certain units from Iowa at $60 per unit. Because Iowa plans to raise the price to $80 per. Unit Illinois is, considering buying these units from outside suppliers for $60 per unit. Iowa 's costs follow;
.Variable costs per unit beautiful beautiful.......... $56
Annual fixed costs beautiful beautiful beautiful, $100 000
Annual production of these units...... beautiful... 50 000,, Units
If Required Illinois buys from an outside supplier the facilities, that Iowa uses to manufacture these units will. Remain idle.What will be the result if Mississippi enforces a transfer price of $80 per unit between Illinois and Iowa?
15-20. Evaluate. Transfer Pricing System
Division A offers its product to outside market for $60. It incurs variable costs of $22 per unit. And fixed costs of $75 000 per, month based on monthly production, of 4 000 units.Division B can acquire the product from an alternate supplier for $62 per unit or from Division A for $60 plus $4 per unit. In transportation costs in addition to the transfer price charged by Division A.
a Required. What are the costs and benefits. Of the alternatives available to Division A and Division B with respect to the transfer of Division A 's product?Assume that Division A can market all that it can produce.
B. How would your answer change if Division A had idle capacity. Sufficient to cover all of Division B 's needs?
15-21. Evaluate Transfer Pricing System
Seattle Transit Ltd. Operates a. Local mass transit system. The transit authority is a state government agency.It has an agreement with the state government to provide rides to senior citizens for 50 cents per trip. The government. Will reimburse Seattle Transit for the "cost." of each trip taken by a senior citizen.
The regular fare is $2 per, trip. After analyzing its costs Seattle Transit, figured that with its operating deficit the full, cost of each ride on the transit. System is $4, Routes.Capacity and operating, cost are unaffected by the number of senior citizens on any route.
a Required. What alternative. Prices could be used to determine the government reimbursement to Seattle Transit?
B. Which price would Seattle Transit. Prefer? Why?
C. Which price would the state government prefer? Why?
D. If Seattle Transit provides an average, of 150000 trips for senior citizens in a given month what is, the monthly value of the difference between the prices in (B and.) (c)
15-25. Evaluate Transfer Pricing System
Mountain Industries operates a Manufacturing Division and an Assembly. Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them. For sale.Manufacturing sells many components to third parties in addition to Assembly.
Selected data from the two operations follow.
Manufacturing Assembly Capacity (units), 100 200 000, Sales price 000
* $100 $300
Variable Costs * * $40 $120
Fixed costs $10 000 000,,, ,, $6 000 000
*, For Manufacturing this is the price to third parties.
* *, For AssemblyThis does not include the transfer price paid to Manufacturing
a Required. Current production levels in Manufacturing, are 100 000 units.? Assembly requests an, additional 20 000 units to produce a special order. What transfer price would you recommend? Why?
B.? Suppose Manufacturing is operating at full capacity. What transfer price would you recommend? Why?
C.Suppose Manufacturing is operating, at 190 000 units. What transfer price would you recommend? Why?
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