San Jose Company operates a Manufacturing Division and an AssemblyDivision. Both divisions are evaluated...

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Accounting

San Jose Company operates a Manufacturing Division and an AssemblyDivision. Both divisions are evaluated as profit centers. Assemblybuys components from Manufacturing and assembles them for sale.Manufacturing sells many components to third parties in addition toAssembly. Selected data from the two operations follow:
Manufacturing Assembly
Capacity (units) 404,000 204,000
Salesprice^a $ 408 $ 1,320
Variablecosts^b $ 180 $ 488
Fixedcosts $ 40,040,000 $ 24,040,000
^a For Manufacturing, thisis the price to third parties.
^b For Assembly, this doesnot include the transfer price paid to Manufacturing.
Required:
a. Current production levels in Manufacturing are204,000 units. Assembly requests an additional 44,000 units toproduce a special order. What transfer price would yourecommend?
b. Suppose Manufacturing is operating at fullcapacity. What transfer price would you recommend?
c. Suppose Manufacturing is operating at 382,000units. What transfer price would you recommend?(Round your answer to 2decimal places.)

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4.0 Ratings (803 Votes)

a Optimal Transfer price 18000 When selling division is operating below capacity including additional units ordered by buying division ie 204000 units 44000 units See Answer

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In: AccountingSan Jose Company operates a Manufacturing Division and an AssemblyDivision. Both divisions are evaluated as...San Jose Company operates a Manufacturing Division and an AssemblyDivision. Both divisions are evaluated as profit centers. Assemblybuys components from Manufacturing and assembles them for sale.Manufacturing sells many components to third parties in addition toAssembly. Selected data from the two operations follow:ManufacturingAssemblyCapacity (units)404,000204,000Salespricea$408$1,320Variablecostsb$180$488Fixedcosts$40,040,000$24,040,000a For Manufacturing, thisis the price to third parties.b For Assembly, this doesnot include the transfer price paid to Manufacturing.Required:a. Current production levels in Manufacturing are204,000 units. Assembly requests an additional 44,000 units toproduce a special order. What transfer price would yourecommend?b. Suppose Manufacturing is operating at fullcapacity. What transfer price would you recommend?c. Suppose Manufacturing is operating at 382,000units. What transfer price would you recommend?(Round your answer to 2decimal places.)

	Manufacturing		Assembly
Capacity (units)		404,000		204,000
Salesprice^a	$	408	$	1,320
Variablecosts^b	$	180	$	488
Fixedcosts	$	40,040,000	$	24,040,000