Acc 349 Week 5 Individual
Week 5 Problems and questions
ACC 349
a. Chapter 8 – Exercise E8-11 E8-11 Allied Company’s Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Allied then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell any of their components internally or externally. The following costs relate to small motor LN233 on a per unit basis. Fixed cost per unit $ 5 Variable cost per unit 8 Selling price per unit 30
Instructions
(a) Assuming that the Small Motor Division has excess capacity, compute the minimum acceptable price for the transfer of small motor LN233 to the Household Division.
Cost per unit + Opportunity cost = minimum transfer price $13 + $0 = $13
(b) Assuming that the Small Motor Division does not have excess capacity, compute the minimum acceptable price for the transfer of the small motor to the Household Division.
Cost per unit + Opportunity cost = minimum transfer price $13 + $17 = $30
(c) Explain why the level of capacity in the Small Motor Division has an effect on the transfer price. The reason the level of capacity in the small motor division has an effect on the transfer price is due to loss on profit margins selling to an outside customer when selling to an internal consumer. If a division of a company is operating at maximum capacity and are not able to produce more goods than they can sell to outside customers they would lose money selling their goods to another division of the same company for their cost to manufacture. However, if a company is able to produce more goods than they can sell to outside customers they will not actually lose any money selling at their cost to
ACC 349
a. Chapter 8 – Exercise E8-11 E8-11 Allied Company’s Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Allied then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell any of their components internally or externally. The following costs relate to small motor LN233 on a per unit basis. Fixed cost per unit $ 5 Variable cost per unit 8 Selling price per unit 30
Instructions
(a) Assuming that the Small Motor Division has excess capacity, compute the minimum acceptable price for the transfer of small motor LN233 to the Household Division.
Cost per unit + Opportunity cost = minimum transfer price $13 + $0 = $13
(b) Assuming that the Small Motor Division does not have excess capacity, compute the minimum acceptable price for the transfer of the small motor to the Household Division.
Cost per unit + Opportunity cost = minimum transfer price $13 + $17 = $30
(c) Explain why the level of capacity in the Small Motor Division has an effect on the transfer price. The reason the level of capacity in the small motor division has an effect on the transfer price is due to loss on profit margins selling to an outside customer when selling to an internal consumer. If a division of a company is operating at maximum capacity and are not able to produce more goods than they can sell to outside customers they would lose money selling their goods to another division of the same company for their cost to manufacture. However, if a company is able to produce more goods than they can sell to outside customers they will not actually lose any money selling at their cost to