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?​

---

Definitions:

SA Node

The sinoatrial node, known as the heart's natural pacemaker, responsible for initiating the electrical impulses that dictate heart rate.

AV Node

A specialized part of the heart's electrical system, acting as a gateway between the atria and ventricles, controlling the heart rate.

Bicuspid Valve

Also known as the mitral valve, it controls blood flow between the left atrium and left ventricle in the heart.

Mitral Valve

A valve in the heart that lies between the left atrium and left ventricle, controlling blood flow.