Materials Used by Ford Company in Producing Division A's Product

question 68

Essay

Materials used by Ford 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 Ford Company's total operating income increase?
(b)How much would the operating income of Division A increase?
(c)How much would the operating income 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:

Gilded Age

The period in U.S. history from the 1870s to about 1900, characterized by rapid economic growth, extravagant wealth for some, but also widespread poverty and corruption.

Gilded Age

A term describing the late 19th century in the United States, characterized by rapid economic growth, industrialization, and a marked disparity between rich and poor.

Generalized Economic Growth

Broad-based expansion in economic activity and productivity across multiple sectors, leading to increased wealth and living standards over time.

Corruption

The abuse of entrusted power for private gain, which can occur in various forms such as bribery, embezzlement, and nepotism.