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

question 79

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 income from operations increase?
(b) How much would the income from operations of Division A increase?
(c) 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:

Subdural Hemorrhage

A type of bleeding that occurs beneath the dura mater of the brain, often resulting from traumatic injury, leading to pressure on brain tissues.

Epidural Hemorrhage

Bleeding between the inner surface of the skull and the dura mater, often resulting from traumatic injury and potentially leading to increased intracranial pressure.

Compound Skull Fracture

A type of skull fracture where there is a break in the bone as well as an accompanying tear in the scalp or dura mater, exposing the brain to potential infection.

Cranial Sutures

The fibrous joints between the bones of the skull that allow for brain growth in infants and become less prominent over time.