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

question 51

Essay

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 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 the income from operations of Division A increase?
(c)Assuming 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 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:

Distrust

The feeling of skepticism or lack of confidence in the reliability or integrity of someone or something.

Today's Economy

The current state and dynamics of financial systems and markets globally or within specific countries, including trends and challenges.

Identification-Based Trust

A form of trust that arises when individuals can identify with each other's desires and intentions, leading to a higher level of mutual understanding.

Trust

Trust in negotiations refers to the belief in the reliability, truth, ability, or strength of the other party.