Allentown Division of Sparks Incorporated Transfers Its Product to the Youngstown

question 123

Essay

Allentown Division of Sparks Incorporated transfers its product to the Youngstown Division. The Youngstown Division can either buy the item internally or externally. The cost of purchasing the item externally is $73 per unit. The Allentown Division has just completed its annual cost update as follows:
$\begin{array}{lr}\text { Direct materials } & \$ 25.00 \\\text { Direct labor } & 18.00 \\\text { Variable manufacturing overhead } & 6.00 \\\text { Fixed manufacturing overhead } & 3.50 \\\text { Variable selling expenses } & 4.00 \\\text { Fixed selling and administrative expenses } & 8.50\\\text { Total costs } & \$ 65.00 \\\text { Desired return } & 14.00\\ \text { Sales price } & \$ 79.00\end{array}$
The Allentown Division is operating at 60 percent of its 400,000 unit capacity.
Required:
a) What is the minimum transfer price the Allentown Division should charge for internal transfers?
b) What is the maximum price the Youngstown Division would be willing to pay?
c) Why should the Allentown Division reduce its price to the Youngstown Division?

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Definitions:

Near-Death Experience

A personal experience associated with impending death, often characterized by certain perceptions or sensations, such as seeing a light.

Nonjudgmental

An approach that involves accepting and respecting others' choices and behaviors without moral judgment.

Aftereffects

Consequences or outcomes that follow an event, often referring to the residual or lingering effects.

Hopelessness

A feeling or state of despair, often resulting from prolonged suffering or when facing seemingly insurmountable challenges.