Problem related to transfer pricing

Assignment Help Accounting Basics

Reference no: EM13127705

MuniCorp is a decentralized company that rewards division managers based on ROI. The City Division produces a component that is used by the County Division. City's unit cost of manufacturing 5,000 components (capacity) is:

Variable costs $13
Fixed overhead $10
Total costs $23

City can sell 4,000 units on the open market for $30 by incurring selling costs of $2 per unit.
An outside supplier has offered County 5,000 units of this same component for $29. Orders of less than 5,000 units would cost the County Division $31 each. County needs the 5,000 components to make finished goods, which provide a total contribution of $245,000 excluding the cost of the component. The County Division's manager has approached the City Division manager with an offer to purchase the entire 5,000 units from the City Division for a total cost of $130,000 ($26 per unit). If this internal transaction is completed, the City Division would not incur the $2 unit selling costs.

Is the City Division better off by accepting the offer to sell 5,000 units internally for $26 each?

How much is the corporation as a whole better or worse off if the transaction is completed internally as opposed to each division dealing externally? Justify your answer.

What is the highest price the County Division would consider paying the City Division for the component?

How does the analysis change if City can sell 5,000 units on the open market for $30 with the $2 selling cost?

Reference no: EM13127705

Questions Cloud

Journal entry to record the transaction : Courgar Inc. issued 3,000 shares of 4% cumulative $120 par value preferred stock at par. What is the journal entry to record this transaction?

Distinguish between auditing and accounting : You will explore various sources to gather information about the auditing profession.

Calculate the density of propanol : Calculate the density of propanol C3H8O if you know that there are 1.069×10 25 molecules of propanol in 1.35 L.

Quadratic equations and applications : What type of solution do you get for quadratic equations where D

Problem related to transfer pricing : How much is the corporation as a whole better or worse off if the transaction is completed internally as opposed to each division dealing externally? Justify your answer.

Connection between criminal convictions & criminal capacity : How does the data support the connection between criminal convictions and criminal capacity? Explain.

What is the price of share of this preferred stock : A corporation is making preferred dividend payments of $ .75 per quarter and the rate of return is 6%. What is the price of share of this preferred stock? (Hint: The approach is similar to the calculation of the price of a share of common stock, b..

Conduct nonparametric test that machine is mixing nuts : 74 cashews, and 45 pecans. At the 0.05 level of significance, conduct a nonparametric test that the machine is mixing nuts in the ratio 5:2:2:1.

Calculate the value of the keq : Consider the following equibrium: CO(g) + 3H2(g) = CH4(g) + H2(g) Initially, 0.200 mol CO and 0.600 mol H2 are placed in a 2.00 L container.

User Account

All Pages