Starcic Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:?Capacity in units45,000?Selling price to outside customers$86?Variable cost per unit$57?Fixed cost per unit (based on capacity)$15The company has a Transmission Division that needs 6,000 special heavy-duty connectors per year. The Connector Division's variable cost to manufacture and ship this special connector would be $62 per unit. Making these special connectors would require more manufacturing resources. Therefore, the Connector Division would have to reduce its production and sales of regular connectors to outside customers from 45,000 units per year to 38,400 units per year.Required:As far as the
Connector Division is concerned, what is the lowest acceptable transfer price for the special connectors?
What will be an ideal response?
To produce the 6,000 special connectors, the Connector Division will have to give up sales of 6,600 of the regular connectors to outside customers.
| ? | Selling price to outside customers | $86 |
| ? | Variable cost per unit | $57 |
| ? | Unit contribution margin | $29 |
| ? | Reduction in outside unit sales | 6,600 |
| ? | Total contribution margin on lost sales | $191,400 |
From the perspective of the selling division, profits would increase as a result of the transfer if and only if:
Transfer price > Variable cost per unit + (Total contribution margin on lost sales ÷ Number of units transferred)
Transfer price > $62.00 per unit + ($191,400 ÷ 6,000 units) = $62.00 per unit + $31.90 per unit = $93.90 per unit
You might also like to view...
How would an organization’s vision statement sync with its code of ethics?
What will be an ideal response?
Flounder Inc Use the information provided for Flounder Inc to answer the question(s) using the effective interest method. On January 1, 2012, Flounder Inc issued $800,000, 10-year, 9% bonds for $662,356. The bonds pay interest on June 30 and December 31. The market rate is 12%. Refer to the information provided for Flounder Inc What is the carrying value of the bonds after the first interest
payment is made on June 30, 2012? A) $662,356.40 B) $666,097.78 C) $670,063.65 D) $133,902.22
A finder of lost property who knows the true owner and fails to return the property is guilty of the tort of conversion.
Answer the following statement true (T) or false (F)
On a CVP graph for a profitable company, the total expense line will be steeper than the total revenue line.
Answer the following statement true (T) or false (F)