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:

Accuracy of the Assessment

The degree to which a measurement or evaluation correctly reflects or assesses the specific concept it intends to measure.

Civil Commitment

The legal process by which individuals with severe mental illness can be mandated by a court to receive treatment, often in a hospital or other secure facility, without their consent.

Criminal Commitment

A legal process by which individuals are detained in a psychiatric facility because they have been deemed a danger to society due to a mental disorder.

Mentally Unstable

A term often used to describe individuals suffering from conditions that affect their cognitive functions and emotional state in a way that impairs their daily functioning.