Fyodor Corporation has a Parts Division that does work for otherDivisions in the company...

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Accounting

Fyodor Corporation has a Parts Division that does work for otherDivisions in the company as well as for outside customers. Thecompany's Machine Division has asked the Parts Division to provideit with 6,800 special parts each year. The special parts wouldrequire $25 per unit in variable production costs. The MachineDivision has a bid from an outside supplier for the special partsat $36.60 per unit. In order to have time and space to produce thespecial part, the Parts Division would have to cut back productionof another part-the QR4 that it presently is producing. The QR4sells for $48 per unit, and requires $24 per unit in variableproduction costs. Packaging and shipping costs of the QR4 are $2per unit. Packaging and shipping costs for the new special partwould be only $0.50 per unit. The Parts Division is now producingand selling 34,000 units of the QR4 each year. Production and salesof the QR4 would drop by 5% if the new special part is produced forthe Machine Division.
Required:
a. What is the range of transfer prices within which both theDivisions' profits would increase as a result of agreeing to thetransfer of 6,800 special parts per year from the Parts Division tothe Machine Division? (Round your final answers to 2 decimalplaces.)
b. Is it in the best interests of Fyodor Corporation for thistransfer to take place? Yes No

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Answer


Calculation of Margin Lost on QR4

No of Units cut down	34000*5%	$ 1,700

Per Unit Selling Price		$ 48
Less: Variable Production Cost		$ -24
Less: Shipping Charges		$ -2
Contribution Margin per unit		$ 22

Total margin Lost	1700*22	$ 37,400
Per Unit of Special Product	37400/6800	$ 5.5	A

Variable Cost of Special Order:
Variable Production Cost		$ 25
Shippling Charges		$ 0.5
Total Variable Cost		$ 25.5	B

Minimum Price Part Division Will Need:

A+B		$ 31

Maximum Price Machine Division will be ready to pay:

Selling Price from Outside		$ 36.6

Range:
31

Part b:
Yes

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In: AccountingFyodor Corporation has a Parts Division that does work for otherDivisions in the company as...Fyodor Corporation has a Parts Division that does work for otherDivisions in the company as well as for outside customers. Thecompany's Machine Division has asked the Parts Division to provideit with 6,800 special parts each year. The special parts wouldrequire $25 per unit in variable production costs. The MachineDivision has a bid from an outside supplier for the special partsat $36.60 per unit. In order to have time and space to produce thespecial part, the Parts Division would have to cut back productionof another part-the QR4 that it presently is producing. The QR4sells for $48 per unit, and requires $24 per unit in variableproduction costs. Packaging and shipping costs of the QR4 are $2per unit. Packaging and shipping costs for the new special partwould be only $0.50 per unit. The Parts Division is now producingand selling 34,000 units of the QR4 each year. Production and salesof the QR4 would drop by 5% if the new special part is produced forthe Machine Division.Required:a. What is the range of transfer prices within which both theDivisions' profits would increase as a result of agreeing to thetransfer of 6,800 special parts per year from the Parts Division tothe Machine Division? (Round your final answers to 2 decimalplaces.)b. Is it in the best interests of Fyodor Corporation for thistransfer to take place? Yes No