Flounder Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor. Division A needs 9,000 lamps for the coming year. Division B has the capacity to manufacture 45,000 lamps annually. Sales to outside customers are estimated at 36,000 lamps for the next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $2 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $72,000. Consider the following independent situations.
Flounder Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps. Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor. Division A needs 9,000 lamps for the coming year. Division B has the capacity to manufacture 45,000 lamps annually. Sales to outside customers are estimated at 36,000 lamps for the next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $2 of variable sales costs that are not incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $72,000. Consider the following independent situations.
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 4CE
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Question
![Flounder Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.
Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor.
Division A needs 9,000 lamps for the coming year.
Division B has the capacity to manufacture 45,000 lamps annually. Sales to outside customers are estimated at 36,000 lamps for the
next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $2 of variable sales costs that are not
incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $72,000.
Consider the following independent situations.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5b038a8b-53d9-4c60-ba0c-2200dc11f29a%2F083a303d-5138-401a-925f-68a017b851ca%2Fwledtzc_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Flounder Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.
Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor.
Division A needs 9,000 lamps for the coming year.
Division B has the capacity to manufacture 45,000 lamps annually. Sales to outside customers are estimated at 36,000 lamps for the
next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $2 of variable sales costs that are not
incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $72,000.
Consider the following independent situations.
![(c)
If Division A needs 11,250 lamps instead of 9,000 during the next year, what should be the minimum transfer price accepted by
Division B and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)
Minimum transfer price accepted by Division B
Maximum transfer price paid by Division A
$
GA
$
per unit
10 per unit](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5b038a8b-53d9-4c60-ba0c-2200dc11f29a%2F083a303d-5138-401a-925f-68a017b851ca%2F6zxqtxa_processed.jpeg&w=3840&q=75)
Transcribed Image Text:(c)
If Division A needs 11,250 lamps instead of 9,000 during the next year, what should be the minimum transfer price accepted by
Division B and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)
Minimum transfer price accepted by Division B
Maximum transfer price paid by Division A
$
GA
$
per unit
10 per unit
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Follow-up Questions
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Follow-up Question
![(c)
Your answer is partially correct.
If Division A needs 11,250 lamps instead of 9,000 during the next year, what should be the minimum transfer price accepted by
Division B and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)
Minimum transfer price accepted by Division B
Maximum transfer price paid by Division A
$
LA
LA
6.25
10
per unit
per unit](https://content.bartleby.com/qna-images/question/5b038a8b-53d9-4c60-ba0c-2200dc11f29a/8094c350-6d81-49ae-8c9a-3e3d4c039f1d/rtlr5we_thumbnail.jpeg)
Transcribed Image Text:(c)
Your answer is partially correct.
If Division A needs 11,250 lamps instead of 9,000 during the next year, what should be the minimum transfer price accepted by
Division B and the maximum transfer price paid by Division A? (Round answers to 2 decimal places, e.g. 10.50.)
Minimum transfer price accepted by Division B
Maximum transfer price paid by Division A
$
LA
LA
6.25
10
per unit
per unit
![Flounder Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.
Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor.
Division A needs 9,000 lamps for the coming year.
Division B has the capacity to manufacture 45,000 lamps annually. Sales to outside customers are estimated at 36,000 lamps for the
next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $2 of variable sales costs that are not
incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $72,000.
Consider the following independent situations.](https://content.bartleby.com/qna-images/question/5b038a8b-53d9-4c60-ba0c-2200dc11f29a/8094c350-6d81-49ae-8c9a-3e3d4c039f1d/8tlmqts_thumbnail.jpeg)
Transcribed Image Text:Flounder Inc. has two divisions. Division A makes and sells student desks. Division B manufactures and sells reading lamps.
Each desk has a reading lamp as one of its components. Division A can purchase reading lamps at a cost of $10 from an outside vendor.
Division A needs 9,000 lamps for the coming year.
Division B has the capacity to manufacture 45,000 lamps annually. Sales to outside customers are estimated at 36,000 lamps for the
next year. Reading lamps are sold at $12 each. Variable costs are $7 per lamp and include $2 of variable sales costs that are not
incurred if lamps are sold internally to Division A. The total amount of fixed costs for Division B is $72,000.
Consider the following independent situations.
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