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IM has been approached by an outside purchaser who has offered to buy 300,000 units...

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Accounting

IM has been approached by an outside purchaser who has offered to buy 300,000 units of gum base per year at a price of $1.50 per unit. Although IM does not currently have the capacity to take the order, the manager has threatened to reduce the units supplied internally to FP to 700,000 units and accept the external order if FP does not agree to an increase in the transfer price to $1.50 per unit. Additional Information: Initial Manufacturing (IM) Current production (all supplied to FP) 900,000 units Capacity 1,000,000 units Outside order volume 300,000 units External selling price $1.50 per unit Current internal transfer price $1.00 per unit Variable cost $0.30 per unit Current fixed costs (based on 900,000 units) $45,000 per year Final Production (FP) Demand 900,000 units Selling price $1.90 per unit Variable costs (not including transferred-in costs) $0.20 per unit Current transferred-in cost $1.00 per unit Fixed costs $55,000 per year Mei is frustrated with their squabbling and is concerned they are not doing what is in the best interest of the company. The gum bases are currently transferred at $1.00 per unit, although no one can remember how this number was chosen. Show all calculations on excel.

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