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Homework answers / question archive / The Post Division of Awal Company produces basic posts, which can be sold to outside customers or sold to the Lamp Division of Awal Company
The Post Division of Awal Company produces basic posts, which can be sold to outside customers or sold to the Lamp Division of Awal Company. The following data are available for last year's activities of the Post Division The Post Division: Capacity in units Selling price per post to outside customers. Variable costs per post. Fixed costs, total 300.000 posts $1.75 $0.90 $150,000 The Lamp Division Number of Units needed Purchase Price from Outside Suppliers 25,000 posts $1.5 Required: 1. Suppose that the Post Division sells to outside customers 270.000 units. What is the lowest transfer price that would not reduce the profits of the Post Division? And what is the range of transfer? 2. Suppose that the Post Division sells to outside customers 300.000 units and the cost of packing and shipping the posts for outside customers is $0.1 unit, these packing and shipping costs would not have to be incurred on sales of the posts to Lamp Division. What is the lowest transfer price that would not reduce the profits of the Post Division? And what is the range of transfer? For the toolbar press ALT+F10 (PC) or ALT+FN+F10 (Mac), A 1 1
Solution 1.
Company outside demand is 270000 unit But company capacity is 300000 Unit.
So 30000 unit is spare capacity.
So Company can be transfer 25000 unit at variable cost $0.90 bcz company has 30000 unit Spare capacity.
Solution 2.
Company Outside demand is 300000 unit and company capacity also 300000 unit.
So No spare capacity available.
So company can be transfer 25000 unit at selling price $ 1.75 bcz company has no spare capacity.
If Department purchase outside than purchase cost $ 1.5 per unit.
It is better to purchase outside market.
