(Appendix 12A)Division a Makes Watzits

question 17

Essay

(Appendix 12A)Division A makes watzits.The company has sufficient capacity to make 70, 000 watzits per year.The company expects to sell 65, 000 watzits this year.Division B uses watzits in their production and has total needs of 20, 000 watzits this year.Division B is presently buying watzits from an outside supplier for $11.25 each.The cost to Division A to make the watzits are $5.00 for direct materials, $2.00 for direct labor, $2.50 for variable manufacturing overhead, and $1.50 for fixed manufacturing overhead.Direct labor is a variable cost.Division A sells watzits on the outside market for $11.50 each.
Required:
a.Assuming that Division B buys its entire 20, 000 requirement of watzits from Division A, is it possible for Division A and Division B to agree to a mutually acceptable transfer price and if so, within what range would that transfer price be?
b.Assuming that Division B buys only 5, 000 watzits from Division A, is it possible for Division A and Division B to agree to a mutually acceptable transfer price and if so, within what range would that transfer price be?

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Definitions:

Kindergarten

A preschool educational approach that emphasizes play, physical activity, creativity, and socialization to foster children's growth and development.

Psychosexual Feelings

Emotions and attachments related to the erotic desire and experiences as conceptualized in psychoanalytic theory.

Repressed

Refers to thoughts or feelings that have been unconsciously blocked from conscious awareness, often due to being perceived as unacceptable or threatening.

Oedipus

A concept in psychoanalytic theory referring to a child's unconscious sexual desire for the opposite-sex parent and jealousy toward the same-sex parent.