Oxford Company has two divisions. Thames Division, which has an investment base of $80,600,000, produces...
70.2K
Verified Solution
Link Copied!
Question
Finance
Oxford Company has two divisions. Thames Division, which has an investment base of $80,600,000, produces and sells 940,000 units of a product at a market price of $143 per unit. Its variable costs total $40 per unit. The division also charges each unit $71 of fixed costs based on a capacity of 1,000,000 units. Lakes Division wants to purchase 210,000 units from Thames. However, it is willing to pay only $80 per unit because it has an opportunity to accept a special order at a reduced price. The order is economically justifiable only if Lakes can acquire Thames' output at a reduced price. Division managers are evaluated using residual income using a 12 percent cost of capital Required: a. What is the residual income for Thames without the transfer to Lakes? Residual income b. What is Thames's residual income if it transfers 210,000 units to Lakes at $80 each? Residual income c. What is the minimum transfer price for the 210,000-unit order that Thames would accept if it were willing to maintain the same residual income with the transfer as it would accept by selling its 940,000 units to the outside market? (Round your answer to 2 decimal places.) Minimum transfer price per unit
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
