Washington Company Has Two Divisions,Jefferson and Adams

question 86

Essay

Washington Company has two divisions,Jefferson and Adams.Jefferson produces an item that Adams could use in its production.Adams currently is purchasing 100,000 units from an outside supplier for $78.40 per unit.Jefferson is currently operating at full capacity of 900,000 units and has variable costs of $46.40 per unit.The full cost to manufacture the unit is $59.20.Jefferson currently sells 900,000 units at a selling price of $86.40 per unit.
a.What will be the effect on Washington Company's operating profit if the transfer is made internally?
b.What will be the change in profits for Jefferson if the transfer price is $67.20 per unit?
c.What will be the change in profits for Adams if the transfer price is $67.20 per unit?

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Definitions:

The Halo Effect

A cognitive bias where the perception of positive qualities in one aspect leads to the unjustifiably favorable evaluation of other aspects.

Generosity Error

A bias in rating where the evaluator tends to give higher ratings than deserved, often due to a desire to be seen as favorable or kind.

Inaccurately

Describes information, data, or results that are not correct or precise, often leading to errors in interpretation or conclusions.

Overall Impression

A general assessment or perception of something, typically considering all aspects or a comprehensive view.