Lakeside Industries’ Operates as a Decentralized Organization

question 99

Essay

Lakeside Industries’ operates as a decentralized organization. Its tent division manufactures small camping tents. The fabricating division manufactures one component needed by the tent division. The tent division has been purchasing the component from an outside supplier, but top management has conducted a study and believes the company could substantially cut costs by all divisions purchasing any components made by other divisions from lakeside rather than an outside source. Detailed unit cost for the fabricating component needed to make tents is given below:

The manufacturing overhead is 60% fixed and 40% variable.

Required:

c. What is the transfer price if Lakeside uses the market-based price?

d. What is the minimum transfer price?

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Definitions:

Annual Percentage Rate

The annual rate charged for borrowing or earned through an investment, accounting for all costs.

Interest

The cost of using borrowed money, paid by the borrower to the lender, typically expressed as a percentage of the principal sum per year.

Stated Rate

The annual interest rate of a bond or loan without adjusting for compounding or other factors, often differing from the effective rate or annual percentage rate (APR).

Annual Percentage Rate

The annual rate charged for borrowing or earned through an investment, which represents the actual yearly cost over the term of a loan.