Corp. has two divisions, Daffodil and Tulip. Daffodil produces a gadget that Tulip could use in its production. Tulip currently purchases 195,00 gadgets for $14.40 on the open market. Daffodil's variable costs are $7.90 per widget while the full cost is $12.20. Daffodil sells gadgets for $15 ea Daffodil is operating at capacity, what would be the maximum transfer price Tulip would pay internally? Multiple Choice $7.90 $12.20 $14.40 $14.90

Corp. has two divisions, Daffodil and Tulip. Daffodil produces a gadget that Tulip could use in its production. Tulip currently purchases 195,00 gadgets for $14.40 on the open market. Daffodil's variable costs are $7.90 per widget while the full cost is $12.20. Daffodil sells gadgets for $15 ea Daffodil is operating at capacity, what would be the maximum transfer price Tulip would pay internally? Multiple Choice $7.90 $12.20 $14.40 $14.90

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. From the point of view of Slate’s management, how much of the SD output should be transferred to the AD?
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