Collyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows: Capacity...

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Collyer Products Inc. has a Valve Division that manufacturesand sells a standard valve as follows:
  Capacity in units 260,000
  Selling price to outside customers on theintermediate market $ 19
  Variable costs per unit $ 11
  Fixed costs per unit (based on capacity) $   8

The company has a Pump Division that could use this valve in themanufacture of one of its pumps. The Pump Division is currentlypurchasing 23,000 valves per year from an overseas supplier at acost of $18 per valve.
Required:
1.
Assume that the Valve Division has ample idle capacity to handleall of the Pump Division's needs. What is the acceptable range, ifany, for the transfer price between the two divisions?
2.
Assume that the Valve Division is selling all that it canproduce to outside customers on the intermediate market. What isthe acceptable range, if any, for the transfer price between thetwo divisions?
3.
Assume again that the Valve Division is selling all that it canproduce to outside customers on the intermediate market. Alsoassume that $2 in variable expenses can be avoided on transferswithin the company, due to reduced selling costs. What is theacceptable range, if any, for the transfer price between the twodivisions?
4.
Assume the Pump Division needs 30,000 special high-pressurevalves per year. The Valve Division's variable costs to manufactureand ship the special valve would be $10 per unit. To produce thesespecial valves, the Valve Division would have to reduce itsproduction and sales of regular valves from 260,000 units per yearto 200,000 units per year. As far as the Valve Division isconcerned, what is the lowest acceptable transfer price?(Round your answer to 2 decimal places.)

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4.1 Ratings (652 Votes)

Answer 1 Since Valve division has spare capacity to handle all of the Pump Divisions needs so Valve division should not cut their outside customers sales Minimum trasfer price from the View point of Valve division variable cost per unit 11 Maximum trasfer point from View point ofPump Division Purchase price from Outside 18 acceptable See Answer

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Capacity in units		260,000
Selling price to outside customers on theintermediate market		$ 19
Variable costs per unit		$ 11
Fixed costs per unit (based on capacity)		$ 8

1.	Assume that the Valve Division has ample idle capacity to handleall of the Pump Division's needs. What is the acceptable range, ifany, for the transfer price between the two divisions?
2.	Assume that the Valve Division is selling all that it canproduce to outside customers on the intermediate market. What isthe acceptable range, if any, for the transfer price between thetwo divisions?
3.	Assume again that the Valve Division is selling all that it canproduce to outside customers on the intermediate market. Alsoassume that $2 in variable expenses can be avoided on transferswithin the company, due to reduced selling costs. What is theacceptable range, if any, for the transfer price between the twodivisions?
4.	Assume the Pump Division needs 30,000 special high-pressurevalves per year. The Valve Division's variable costs to manufactureand ship the special valve would be $10 per unit. To produce thesespecial valves, the Valve Division would have to reduce itsproduction and sales of regular valves from 260,000 units per yearto 200,000 units per year. As far as the Valve Division isconcerned, what is the lowest acceptable transfer price?(Round your answer to 2 decimal places.)