i Finder File Edit View Go Window Help 70L E Sat Jun 30

i Finder File Edit View Go Window Help ? ? 70%)L\' ? E )) Sat Jun 30 5:00 PM Alex ezto.mheducation.com Home alamo.edu McGraw-Hill Connect Chapter 10 Exercises 11.11 points The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $31 per unit. Variable costs for the casing are $12 per unit and fixed cost is $4 per unit. Cotwold executives would like for the Molding Division to transfer 14,000 units to the Assembly Division at a price of $21 per unit Assume that the Molding Department has excess capacity, but the Assembly Department requires the casing to be made from a specific blend of plastics. This would raise the variable cost per unit to $26 Required 1. Should the Molding Division accept the $21 transfer price proposed by management? No Yes 2. Determine the minimum transfer price that it will accept. inimum Transfer Price 3. Determine the mutually beneficial transfer price so that the two divisions equally split the profits from the transfer. (Round your answer to 2 decimal places.) utually Beneficial Transfer Price afari.dmg 0

Solution

No.

Since Specific Blend has Variable cost $26

Total cost=26+4(fixed) =$30per unit

Transfer price of 21 isnt acceptable.

2)Minimum Price should be.

$30

Since there is excess capacity .No need to consider opportunity cost.Only to recover total cost spend.

Which is $30(frm above) any price above which is acceptable.

3)difference in variable cost for specific blend and normal (26-21)=$5

So assume if Assembly division buy special blend from outside will cost (31normal +5)=$35.

In that case Transfer price at equal profit for divisions will be

$32.5 (30cost + (5/2)premium)

If Assembly Division buys normal Plastic blend result will vary.

External price-31 cost- 16 premium =15

Then equal profit for both will be at (16 cost+(15/2)=$23.5.