Wallen Products Inc. has just purchased a small company that specializes in the manufacture of...
Question:
Wallen Products Inc. has just purchased a small company that specializes in the manufacture of electronic tuners that are used as a component part of LCD TVs. Wallen Products is a decentralized company, and it will treat the newly acquired company as an autonomous division with full profit responsibility.
The new division, called the Tuner Division, has the following revenue and costs associated with each tuner that it manufactures and sells:
Selling price Expenses: Variable $20 $11
Fixed (based on a capacity of 100,000 tuners per year) 6 17
Operating income $ 3
Wallen Products also has an Assembly Division that assembles TVs. This division is currently purchasing 30,000 tuners per year from an overseas supplier at a cost of $20 per tuner, less a 10% purchase discount. The president of Wallen Products is anxious to have the Assembly Division begin purchasing its tuners from the newly acquired Tuner Division in order to keep the profits within the corporate family Reurate e Required For (1) and (2) below, assume that the Tuner Division can sell all of its output to outside TV manufacturers at the normal $20 price
1.a. What is the minimum transfer price for Tuner Division? Minimum transfer price
1-b. What is the maximum transfer price that Assembly Division is ready to pay? Maximum transfer price
1-c. Are the managers of the Tuner and Assembly Divisions likely to voluntarily agree to a transfer price for 30,000 tuners each year?
General Transfer Pricing Rule
The general transfer pricing rule is used to help promote goal congruence and it sets the transfer price as outlay costs plus opportunity costs. Outlay costs relate to variable costs of manufacturing a product while opportunity costs include benefits that the selling division has to forego if it chooses to transfer products to the buying decision. Opportunity costs will need to included if the selling division does not have sufficient capacity to deal with the order from the buying division and has to forego existing sales.
Answer and Explanation: 1
Become a Study.com member to unlock this answer! Create your account
View this answer1-a
General Transfer Pricing Rule = Outlay Cost + Opportunity Cost = 11 + (20 -11) = $20
Minimum transfer price for Tuner Division is $20
1-b
Purc...
See full answer below.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
Market-Based Transfer Pricing: Definition & Computation
from
Chapter 10 / Lesson 8
32K
Learn about market-based transfer pricing and understand how it works. Study a market-based transfer pricing example and compare to adjusted transfer pricing.
Related to this Question
- Galati Products, Inc., has just purchased a small company that specializes in the manufacture of electronic tuners that are used as a component part of TV sets. Galati Products, Inc., is a decentralized company, and it will treat the newly acquired compan
- I-Time, Inc., produces electronic timepieces. The company uses mini-LCD displays for its products. Each timepiece uses one display. The company produced 450 timepieces during October. However, due to LCD defects, the company actually used 470 LCD displa
- I-Time, Inc., produces electronic timepieces. The company uses mini-LCD displays for its products. Each timepiece uses one display. The company produced 450 timepieces during October. However, due to LCD defects, the company actually used 470 LCD displays
- I-Time, Inc., produces electronic timepieces. The company uses mini-LCD displays for its products. Each timepiece uses one display. The company produced 480 timepieces in October. However, due to LCD defects, the company actually used 500 LCD displays dur
- MyTime, Inc., produces electronics timepieces. The company uses mini-LCD displays for its products. Each timepiece uses one display. The company produced 540 timepieces during October. However, due to LCD defects, the company actually used 570 LCD display
- Your client, General Television, Inc. manufactures televisions and during the current year acquired Micro Engineering, Inc., which manufactured flat panel plasma screens for computers so that it could
- Silicone Engine Inc. produces wrist-worn tablet computers. The company uses Thin Film Crystal (TFC) LCD displays for its products. Each tablet uses one display. The company produced 580 tablets in December. However, due to LCD defects, the company actuall
- LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2016. LCD Industries purchased a supply of electronic components from Entel Corporation on November 1,
- Altertech Inc. manufactures a product that contains a circuit board. The company has always purchased this circuit board from a supplier for $166.0 each. It has recently upgraded its own manufacturing
- Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,220 each.
- Company A makes a variety of electronic products including LCD televisions. Company B, which does not compete with Company A, claims that its patented technology is being illegally used by Company A. The technology involves a feature which is not widely u
- Company A makes a variety of electronic products including LCD televisions. Company B, which does not compete with Company A, claims that its patented technology is being illegally used by Company A. The technology involves a feature that is not widely us
- Home Entertainment is a small, family-owned business that purchases LCD televisions from a reputable manufacturer and sells them at the retail level. The televisions sell, on average, for $2,040 each. The average cost of a television from the manufacturer
- Bowman Company manufactures cooling systems and they produce all the parts necessary for its product except for one electronic component, which is purchased from two local suppliers: Manzer Inc. and B
- Ace Inc. produces electronic components for sale to manufacturers of radios, television sets, and digital sound systems. In connection with her examination of Ace's financial statements for the year e
- Stanco Inc. has two divisions, Electronics and Clocks. The Electronics Division (which is operating at capacity) , makes a specialized circuit borad called SA5 which it sells to its regular customers
- Bowman Company manufactures cooling systems. Bowman produces all the parts necessary for its product except for one electronic component, which is purchased from two local suppliers: Manzer Inc. and B
- Sound Tek Inc. manufactures electronic stereo equipment. The manufacturing process incIudes printed circuit (PC) board assembly, final assembly, testing, and shipping. In the PC board assembly operati
- 1. Sony Electronics hires Mr. Mark Gunther of Brockhart & Kaitlin in order to manage inventory operations. Sony has a supplier that produces electronic circuit boards for its TV sets. Sony currently p
- Streeterville Foods, Inc., has recently purchased a small mill that it intends to operate as one of its subsidiaries. The newly acquired mill has three products that it offers for sale wheat cereal, pancake mix, and flour. Each product sells for $10 per p
- Altertech Inc. manufactures a product that contains a circuit board. The company has always purchased this circuit board from a supplier for $32 each. Altertech recently upgraded its own manufacturing capabilities and now has enough excess capacity (inclu
- VisBright manufactures and sells televisions. The company's upstream division, Chip Division, builds chips that are placed behind screens to control the image displayed. Chip Division sells chips to VisBright's downstream division, Screen Division, at a t
- Ultratech, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company's sales. The first of these boards, a television cir
- Valotic Tech Inc. sells electronics over the Internet. The Consumer Products Division is organized as a cost center. Required: 1. Prepare a budget performance report for the director of the Consumer
- Streeterville Foods, Inc., has recently purchased a small mill that it intends to operate as one of its subsidiaries. The newly acquired mill has three products that it offers for sale - wheat cereal,
- Micro Products, Inc. has developed a very powerful electronic calculator. Each calculator requires two small 'chips' that cost $7 each and are purchased from an overseas supplier. Micro Products has p
- CA24-2. (Disclosures Required in Various Situations) Ace Inc. produces electronic components for sale to manufacturers of radios, television sets, and digital sound systems. In connection with her ex
- Micro Products, Inc., has developed a very powerful electronic calculator. Each calculator requires four small 'chips' that $5 each and are purchased from an overseas supplier. Micro Products has prep
- Case 5-1 Microimage Technology, Inc. : MicroImage Technology, Inc. produces miniature digital color cameras that can be attached to endoscopes and other medical devices. The cameras sell for $215 per
- Sound Tek Inc. manufactures electronic stereo equipment. The manufacturing process includes printed circuit (PC) board assembly, final assembly, testing, and shipping. In the PC board assembly operati
- Alanco, Inc. manufactures a variety of products and is currently manufacturing all of their own component parts. An outside supplier has offered to sell one of those components to Alanco. To evaluate
- Alanco, Inc. manufactures a variety of products and is currently manufacturing all of its own component parts. An outside supplier has offered to sell one of those components to Alanco. To evaluate th
- MHZ. Inc. is a high-tech company that produces miniature computer processor chips. The company is one of the most successful companies in its industry because it is always developing faster and more e
- Sound Tek Inc. manufactures electronic stereo equipment. The manufacturing process includes printed circuit (PC) board assembly, final assembly, testing, and shipping. In the PC board assembly operation, a number of individuals are responsible for assembl
- Incan Inc. manufactures a variety of parts for use in its product. The company has always produced all of the necessary parts for its product, including all of the electronic circuits. The company sells 19,000 units of its product per year. An outside sup
- Tasty, Inc., is a producer of potato chips. A single production process at Tasty, Inc., yields potato chips as the main product and a byproduct that can also be sold as a snack. Both products are fully processed by the spin off point, and there are no sep
- Import Distributors, Inc. (IDI), imported appliances and distributed them to retail stores in the Rocky Mountain States. IDI carried three broad lines of merchandise audio equipment (tuners, tape deck
- On May 1, 2013, TV INC. consigned 80 TVs to Ed's TV. The TVs cost $360. Freight on the shipment paid by Ed's TV was $800. On July 10, TV INC. received an account sales and $17,200 from Eds TV. Thirty TVs had been sold and the following expenses were deduc
- Faxmatic, Inc., produces memory enhancement kits for fax machines. Sales have been very erratic, with some months showing a profit and some months showing a loss. The company's contribution format inc
- Micro Products Inc. has developed a very powerful electronic calculator. Each calculator requires three small chips that cost S3 each and are purchased from an overseas supplier. Micro Products has pr
- Affordable Electronics Inc. manufactures medium-quality, reasonably priced DVD players. The company uses standards to control its costs. The labour standards that have been set for one player are as follows: Standard Hours Standard Rate per Hour Standard
- A large electronics company is organized into mainly profit-center divisions. The components division and the consumer electronics division are profit-center divisions of the company. The components d
- The bob Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capa
- Wiengot Antennas, Inc. produces and sells a unique type of TV antennae. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided f
- Red Deer Electronics Inc. manufactures a variety of printers, scanners, and fax machines in its two divisions: the PSF Division and the Components Division. The Components Division produces electronic
- JLE Electronics is an independent contract manufacturer of complex printed circuit board assemblies. Computer companies and other electronics firms engage JLE to assemble their boards. Utilizing comp
- High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The followi
- UHF Antennas, Inc., produces and sells a unique television antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been reported for the first month of the new plant's operation: Beginning
- Skysong Inc. has negotiated the purchase of a new piece of automatic equipment at a price of $10,400 plus trade-in, f.o.b. factory. Skysong Inc. paid $10,400 cash and traded in used equipment. The use
- Tyrene Products manufactures recreational equipment. One of the company's products, a skateboard, sells for $36. The skateboards are manufactured in an antiquated plant that relies heavily on direct l
- Electronic Component Company (ECC) is a producer of high-end video and music equipment. ECC currently sells its top-of-the-line "ECC" DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a ne
- Sound Tek Inc. manufactures electronc stereo equipment. The manufacturing process includes printed circult (PC) board assembly, final assembly, testing, and shipping. In the PC board assembly operatio
- Gilday Furniture Inc. produces custom furniture. Wood chips are an inevitable by-product of the cutting process, and are considered scrap. Gilday is unable to use this scrap; however, the company has an agreement to sell the scrap at market prices to a lo
- Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. CG's main product is a circuit board (CB3668) used in computers with en
- Schultz Electronics manufactures two large-screen television models: the Royale which sells for $1,546, and a new model, the Majestic, which sells for $1,315. The
- The Jacobson Company manufactures two products, A and B from a single raw material call Gizmo. Gizmo is purchased in 100 pound blocks, and the contents of one block are sufficient to produce 50 units
- Wiengot Antennas, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue dates have been provided
- Flint Fabricators Inc. machines metal parts for the automotive industry. Under the traditional manufacturing approach, the parts are machined through two processes: milling and finishing. Parts are produced in batch sizes of 30 parts. A part requires 5 mi
- Flint Fabricators Inc. machines metal parts for the automotive industry. Under the traditional manufacturing approach, the parts are machined through two processes: milling and finishing. Parts are produced in batch sizes of 45 parts. A part requires 6 mi
- Sifton Electronics Corporation manufactures and assembles electronic motor drives for video cameras. The company assembles the motor drives for several accounts. The process consists of a lean cell fo
- Noteworthy, Inc., produces and sells small electronic keyboards. Assume that you have the following information about Noteworthy?s costs for the most recent month. Depreciation on factory equipment $
- Electronic Component Company is a producer of high-end video and music equipment. ECC currently sells its top of the line "ECC" DVD player for a price of $250. It costs ECC $210 to make the player. ECC's main competitor is coming to market with a new DVD
- Climate-Control, Inc., manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a th
- Noteworthy, Inc., produces and sells small electronic keyboards. Assume that you have the following information about Noteworthy's costs for the most recent month. Depreciation on factory equipment $850 Depreciation on CEO's company car 190 Speakers used
- Noteworthy, Inc., produces and sells small electronic keyboards. Assume that you have the following information about Noteworthy's costs for the most recent month. Depreciation on factory equipment $850 Depreciation on CEO's company car $120 Speakers used
- Telemix Company is engaged in the retail sale of high-definition televisions (HDTVs). Each HDTV has a 24-month warranty on parts. If a repair under warranty is required, a charge for the labor is made. Management has found that 20 percent of the HDTVs sol
- New Wave Technology Inc. manufactures and sells two products, MP3 players and satellite radios. The fixed costs are $225,000, and the sales mix is 60% MP3 players and 40% satellite radios. The unit se
- New Wave Technology Inc. manufactures and sells two products. MP3 players and satellite radios. The fixed costs are $271.600. and the sales mix is 40% MP3 players and 60%, satellite radios. The unit s
- BendOR, Inc. manufactures control panels for the electronics industry and has just completed its first year of operations. The following discussion took place between the controller, Gordon Merrick, and the company president, Matt McCray: Matt: I've been
- Tudor company produces several electronic devices in its Minnesota factory. Tudor Company has the following costs related to manufacturing and selling 100,000 RZ devices. |Direct materials| $200,000 |Direct labor| 450,000 |Variable manufacturing overhead|
- Aerial, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided f
- Microfinish inc. is a manufacturer of high- tech industrial parts that was started in 2001 by two talented engineers with little business training. In 2013, the company was acquired by one of its majo
- Pixel Studio, Inc., is a company that creates computer-generated animations for films and television. Much of the company's work consists of short commercials for television, but the company also does
- IMP Ltd. manufactures joint products. Ganon and Hammura. Ganon sells for $60 per unit, whereas Hammura sells for $120 per unit. The 2 products require further processing beyond the split-off point. The following information relates to the 2 products: Gan
- Electronics4U manufactures high-end whole-home electronic systems. The company provides a 1-year warranty for all products sold. The company estimates that the warranty cost is $200 per unit sold, and it reported liability for estimated warranty costs of
- Builder Products, Inc., manufactures a caulking compound that goes through 3 processing stages prior to completion. Information on work in the first department, Cooking, is given below for May: Produc
- Wiengot Antennas, Inc. produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided fo
- Yarnell Electronics sells computer systems to small businesses. During 2009, Yarnell engaged in the following activities involving notes receivable: a. On November 1, Yarnell sold a $5,000 system to Ross Company. Ross gave Yarnell a six-month, 11 percent
- Builder Products, Inc., manufactures a caulking compound that goes through three processing stages prior to completion. Information on work in the first department, Cooking, is given below for May: P
- High Country Inc. produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following
- Lissen Computers uses Alpha Electronics and La Paz Company to buy two electronic components used in the manufacture of its computers: Component 125 X and Component 30 Y. Consider two activities: testi
- Allied Company's Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Allied then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell a
- Lens care Inc. (LCI) manufactures specialized equipment for polishing optical lenses. There are two models - one mainly used for fine eyewear (F-32) and another for lenses used in binoculars, cameras,
- Weller Industries is a decentralized organization with six divisions. The company's Electrical Division produces a variety of electrical items, including an X52 electrical fitting. The Electrical Division (which is operating at capacity) sells this fittin
- Bethel Company owns a machine that can produce two specialized products. Production time for Product TLX is two units per hour and for Product MTV is five units per hour. The machine's capacity is 2,200 hours per year. Both products are sold to a single c
- Kitchen Magician, Inc. has assembled the following data pertaining to its two most popular products. | |Blender|Electric Mixer | Direct material|$17|$26 | Direct labor|10|38 |Manufacturing overhead
- NCP, Inc. is a manufacturer and seller of small, inexpensive plastic housings and connectors used by a variety of small engine and controls device manufacturers. The CFO of NCP is concerned about the
- Climate-Control, Inc. manufactures a variety of heating and air-conditioning units. The company is currently manufacturing all of its own component parts. An outside supplier has offered to sell a the
- DAT, Inc., produces digital audiotapes to be used in the consumer audio division. DAT lacks sufficient personneI in its inventory supply section to closely control each item stocked, so it has asked y
- Memories, Inc. (MI) produces souvenir figurines that are sold wholesale to gift shops. They have created a new line of dolls representing historical figures. The company's goal is to produce and sell
- Builder Products, Inc., manufactures a caulking compound that goes through three processing stages prior to completion. Information on work in the first department, Cooking, is given below for May: Pr
- Builder Products, Inc. manufactures a caulking compound that goes through three processing stages prior to completion. Information on work in the first department, Cooking, is given below for May: Pro
- Edenton Electronics Inc. produces and sells two models of pocket calculators, XQ-103 and XQ-104. The calculators sell for $15 and $25, respectively. Because of the intense competition, Edenton faces m
- The Aleutian Company produces two products, "X" and "Y". They are manufactured in two departments, Fabrication and Assembly. Data for the products and departments are listed below: Product Number of
- High Country, Inc. is a company that produces and sells many recreational products. It has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The
- Tapeo Company has always made its electronic components that go into their GPS systems in-house. Streeter Company has offered to supply these electronic components at a price of $38 each. Tapeo uses 1
- Slyman Manufacturing Inc. has developed the following standards for one of its products. The materials are not substitutable. material 1 ; 5 yards ; $6/yard ; $30 ; material 2 ; 6 pieces ; $5/piece ;
- AMT, Inc., is considering the purchase of a digital camera for maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design fil
- Handy Display Company manufactures display cases to be sold to retail stores. The cases come in three sizes: large, medium, and small. Currently, Handy Display Company uses a single plant-wide overhea
- Four Guys company has in its inventory 5,200 damaged televisions that cost 51,000. the televisions can be sold in their present condition for 37,000 or repaired at a cost of 48,000 and sold for 79,000
Explore our homework questions and answers library
Browse
by subject