Reference no: EM132971948
Question - Weller Industries is a decentralized organization with six divisions. The company's Electrical Division produces a variety of electrical items, including an X52 electrical fitting. The Electrical Division (which is operating at capacity) sells this fitting to its regular customers for $10.40 each; the fitting has a variable manufacturing cost of $5.35.
The company's Brake Division has asked the Electrical Division to supply it with a large quantity of X52 fittings for only $8.40 each. The Brake Division, which is operating at 50% of capacity, will put the fitting into a brake unit that it will produce and sell to a large commercial airline manufacturer. The cost of the brake unit being built by the Brake Division follows:
Purchased parts (from outside vendors) $25.00
Electrical fitting X52 8.40
Other variable costs 15.09
Fixed overhead and administration 9.10
Total cost per brake unit $57.59
Although the $8.40 price for the X52 fitting represents a substantial discount from the regular $10.40 price, the manager of the Brake Division believes the price concession is necessary if his division is to get the contract for the airplane brake units. He has heard "through the grapevine" that the airplane manufacturer plans to reject his bid if it is more than $59 per brake unit. Thus, if the Brake Division is forced to pay the regular $10.40 price for the X52 fitting, it will either not get the contract or it will suffer a substantial loss at a time when it is already operating at only 50% of capacity. The manager of the Brake Division argues that the price concession is imperative to the well-being of both his division and the company as a whole.
Weller Industries uses return on investment (ROI) to measure divisional performance.
Required -
1. Assume that you are the manager of the Electrical Division.
a. What is the lowest acceptable transfer price for the Electrical Division?
b. Would you supply the X52 fitting to the Brake Division for $8.40 each as requested?
2. Assuming the airplane brakes can be sold for $59, what is the financial advantage (disadvantage) for the company as a whole (on a per unit basis) if the Electrical Division supplies fittings to the Brake Division?
3. In principle, within what range would the transfer price lie?
|
What is the finance charge on the loan
: Meghan Pease purchased a small sailboat for $8,350. She made a down payment of $1,300. What is the finance charge on the loan
|
|
Should the company install the lock-box system
: Assume a company receives cash from different geographic areas of $500,000 daily. Should the company install the lock-box system
|
|
Calculate the macaulay duration of the bond
: The bond has a coupon rate of 5%, paid quarterly. The company bought the bond at 105. Calculate the Macaulay Duration of the bond
|
|
Determine the total materials variance
: The labor used was 11,700 hours at an average rate of $20.50 per hour. The actual overhead spending was $96,200. Determine the total materials variance
|
|
What is the lowest acceptable transfer price
: The fitting has a variable manufacturing cost of $5.35. What is the lowest acceptable transfer price for the Electrical Division
|
|
What change in contribution margin should firm experience
: What change in contribution margin should the firm experience if it increased sales by 10,000 units and fixed costs rose by $50,000 over last year
|
|
What is the incremental carrying cost on receivable
: Under the new credit term, discount customers are expected to rise to 75%. What is the incremental carrying cost on receivable
|
|
What is the cost assigned to abnormal lost units
: Direct materials costs are incurred when production is 90% complete. What is the cost assigned to abnormal lost units
|
|
What is the current death benefit from this policy
: Yesterday Alexandra paid her premium of $1,400 for the coming year. What is the current death benefit from this policy
|