Cohasset Company Currently Manufactures All Component Parts Used in the Manufacture

question 35

Multiple Choice

Cohasset Company currently manufactures all component parts used in the manufacture of various hand tools.Hurley Division produces a steel handle used in three different tools.The budget for these handles is 120,000 units with the following unit cost. Ironwood Division purchases 20,000 handles from Hurley Division and completes the hand tools.An outside supplier,R & M Steel,has offered to supply 20,000 units of the handle to Ironwood Division for $1.25 per unit.Hurley currently has idle capacity that cannot be used.If Cohasset would like to develop a range of transfer prices,what would be the maximum transfer price that Ironwood would be willing to pay?

• A)$1.00.
• B)$1.10.
• C)$1.25.
• D)$1.30.

---

Definitions:

Nonoperating Activities

Transactions or events that fall outside the primary operations of a business, impacting the firm's financials but not related to its core operations.

Revenues

The complete revenue accrued from the core business activities through selling goods or services.

Secondary Operations

Processes that are performed after the primary manufacturing or production process to add value to a product, such as finishing, painting, or assembly.

Periodic Inventory System

An inventory accounting system where stock levels and cost of goods sold are determined at the end of an accounting period through a physical count.