1.Home Products, Inc., is planning the introduction of a new food dryer. To compete effectively, the dryer would have to be priced at no more than $40 per unit. An investment of $600,000 would have to be made in order to produce and sell the new dryer. The company requires a return on investment of at least 25% on new products. Assuming that the company expects to produce and sell 30,000 dryers per year, the target cost per dryer would be closest to:
2.Division C makes a part that it sells to customers outside of the company. Data concerning this part appear below:
Selling price to outside customers $ 75 Variable cost per unit $ 54 Total fixed costs $ 150,000 Capacity in units 10,000
Division D of the same company would like to use the part manufactured by Division C in one of its products. Division D currently purchases a similar part made by an outside company for $79 per unit and would substitute the part made by Division C. Division D requires 1,000 units of the part each period. Division C has ample excess capacity to handle all of Division Dâs needs without any increase in fixed costs and without cutting into outside sales. What is the lowest acceptable transfer price from the standpoint of the selling division?
1.Home Products, Inc., is planning the introduction of a new food dryer. To compete effectively, the dryer would have to be priced at no more than $40 per unit. An investment of $600,000 would have to be made in order to produce and sell the new dryer. The company requires a return on investment of at least 25% on new products. Assuming that the company expects to produce and sell 30,000 dryers per year, the target cost per dryer would be closest to:
2.Division C makes a part that it sells to customers outside of the company. Data concerning this part appear below:
| Selling price to outside customers | $ | 75 |
| Variable cost per unit | $ | 54 |
| Total fixed costs | $ | 150,000 |
| Capacity in units | 10,000 | |
Division D of the same company would like to use the part manufactured by Division C in one of its products. Division D currently purchases a similar part made by an outside company for $79 per unit and would substitute the part made by Division C. Division D requires 1,000 units of the part each period. Division C has ample excess capacity to handle all of Division Dâs needs without any increase in fixed costs and without cutting into outside sales. What is the lowest acceptable transfer price from the standpoint of the selling division?
Related questions
Division X makes apart that it sells to customers outside of the company. Dataconcerning this part appear below: |
| Selling price to outside customers | $49 |
| Variable cost per unit | $45 |
| Total fixed costs | $482,000 |
| Capacity in units | 29,200 |
Division Y of the samecompany would like to use the part manufactured by Division X inone of its products. Division Y currently purchases a similar partmade by an outside company for $49 per unit and would substitutethe part made by Division X. Division Y requires 5,640 units of thepart each period. Division X can already sell all of the units itcan produce on the outside market. What should be the lowestacceptable transfer price from the perspective of Division X? |
