Minimum transfer price for the small motor division

Reference no: EM13987529

Kimer Company's Small Motor Division produces a variety of small motors that are used in various household and office appliances. Kimer's Kitchen Products Division manufactures appliances such as blenders, juicers, coffee grinders, and so on. The most frequently used motor is Model A28, which can be purchased from a number of outside suppliers for $2.30 each. The manager of the Kitchen Products Division has approached the manager of the Small Motor Division and offered to buy 150,000 Model A28 small motors. The Small Motor Division currently is producing at capacity and produces and sells 200,000 Model A28 motors to outside customers for $2.30 each.

Required:

1. What is the minimum transfer price for the Small Motor Division? What is the maximum transfer price for the Kitchen Products Division? Is it important that transfers take place internally? If transfers do take place, what should the trans- fer price be?

2. Now assume that the Small Motor Division incurs selling costs of $0.20 per motor that could be avoided if the motors are sold internally. Identify the mini- mum transfer price for the Small Motor Division and the maximum transfer price for the Kitchen Products Division. Should internal transfers take place? If so, what is the benefit to the firm as a whole?

3. Suppose you are the manager of the Small Motor Division. Selling costs of $0.20 per motor are avoidable if they are sold internally. Would you accept an offer of $2.20 from the manager of the other division? How much better off (or worse off) would your division be if this price is accepted?

Reference no: EM13987529

Questions Cloud

Describe a specific motive style, or instrumentation : How are musical elements (be as specific and descriptive as possible!) employed with regards to film form, narrative, and emotional expression?Describe a specific motive, style, or instrumentation that returns in multiple places. What expressive purp..

The common app college transfer college student application : What: A 250-650 words essay for The Common App college transfer college student application. I am currently a student at a 4 year university and I am looking to transferring to another university where I can study Mechanical Engineering.

Describe the bulb after the switch is closed : Which statement correctly describes the bulb after the switch is closed? Assume the battery is ideal (it has no internal resistance) and the connecting wires have no resistance.

Creating a prompt for an essay on too big to fail : Creating a prompt for an essay on "too big to fail" concerning a private and public policy issue. Also, I need 10 recourse cited in MLA style along with 2-3 sentences of claims or points from the book and speakers that support the issue on the promp..

Minimum transfer price for the small motor division : What is the minimum transfer price for the Small Motor Division? What is the maximum transfer price for the Kitchen Products Division? Is it important that transfers take place internally? If transfers do take place, what should the trans- fer pri..

Explain why it does or given an example : If a function f(x) is defined for all real x and has an inverse f-1(x), does it necessarily follow that also g(x) = [f(x)2] has an inverse g-1(x)?

Compute average operating assets : 1. Compute average operating assets. 2. Compute the margin and turnover ratios for last year. Compute ROI.

Treatment of customer groups : 1. Explain how the treatment of customer groups as segments can be useful to a firm. 2. What are margin and turnover? Explain how these concepts can improve the evaluation of an investment center.

At what project duration do we achieve the lowest total : At what project duration do we achieve the lowest total project cost(i.e., direct plus indirect costs)? (a) 16 days (b) 15 days (c) 14 days(d) 13 days

User Account

All Pages