question archive The materials used by the Vancouver Division of Roberts Company arc currently purchased from outside suppliers at $45 per unit
The materials used by the Vancouver Division of Roberts Company arc currently purchased from outside suppliers at $45 per unit
Subject:AccountingPrice:2.89 Bought3
The materials used by the Vancouver Division of Roberts Company arc currently purchased from outside suppliers at $45 per unit. These same materials are produced by Roberts’ Tucson Division. The Tucson Division can produce the materials needed by the Vancouver Division at a variable cost of $30 per unit. The division is currently producing
100,000 units and has capacity of 1.30,000 Units. The two divisions have recently negotiated a transfer price of $38 per unit for 25,000 units. By how much will each division’s income increase as a result of this transfer?
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Increase in Tuscon (Supplying)
Division’s Income from Operations = (Transfer Price – Variable Cost per Unit) ×
Units Transferred
Increase in Tuscon (Supplying)
Division’s Income from Operations = ($38 – $30) × 25,000 units = $200,000
Increase in Vancouver (Purchasing)
Division’s Income from Operations = (Market Price – Transfer Price) × Units
Transferred
Increase in Vancouver (Purchasing)
Division’s Income from Operations = ($45 – $38) × 25,000 units = $175,000
