Materials Used by Best Bread Company in Producing Division A's

question 63

Short Answer

Materials used by Best Bread Company in producing Division A's product are currently purchased from outside suppliers at a cost of $30 per unit. However, the same materials are available from Division B. Division B has unused capacity and can produce the materials needed by Division A at a variable cost of $20 per unit.
(a) If a transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would Best Bread Company's total income from operations increase?
(b) Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division A increase?
(c) Assuming transfer price of $25 per unit is established and 60,000 units of material are transferred, with no reductions in Division B's current sales, how much would the income from operations of Division B increase?
(d) If the negotiated price approach is used, what would be the range of acceptable transfer prices?

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Definitions:

Holistic

An approach that considers the entire person, including their physical, mental, and social aspects, rather than focusing on specific parts or symptoms.

Biomedical

Pertaining to the application of biological and physiological principles to clinical practice and research, including the study and creation of medical devices and drugs.

Magico-religious

Pertaining to beliefs and practices that combine elements of magic and religion, often used to explain and address human health and illness in various cultures.

Stoically

With endurance and without complaint, embodying the qualities of stoicism, a philosophy promoting resilience and self-control.