Sandy Company Has Two Divisions,Huron and Cortez

question 118

Essay

Sandy Company has two divisions,Huron and Cortez.Huron produces an item that Cortez could use in its production.Cortez currently is purchasing 50,000 units from an outside supplier for $24 per unit.Huron is currently operating at full capacity of 600,000 units and has variable costs of $13.50 per unit.The full cost to manufacture the unit is $19.50.Huron currently sells 600,000 units at a selling price of $25.50 per unit.
a.What will be the effect on Sandy Company's operating profit if the transfer is made internally?
b.What is the minimum transfer price from Huron's perspective?
c.What is the maximum transfer price from Cortez' perspective?

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Definitions:

Debt Financing

Raising capital through borrowing, typically via loans or by issuing bonds, which must be repaid with interest.

Strategic Issues

Fundamental challenges or decisions that are critical to an organization's long-term success and competitive position.

Annual Plans

Detailed, year-long strategies and financial budgets that organizations create to guide operations, achieve strategic objectives, and meet financial targets.

Small Business

A privately owned corporation, partnership, or sole proprietorship that has fewer employees and lower annual revenue than a corporate or multinational company.