Use the following information to answer Problems below
Walkeasy Co. produces shoes and memory foam insoles. The memory foam insoles were originally designed to be a component of the shoes (1 insole per shoe). However, the market for memory foam insoles was profitable enough that management has opted to sell some of the insoles on their own. Any insoles produced beyond what is necessary to meet the needs of shoes production are sold at market prices. Normally, the transfer cost of the insoles is equal to the market sale price. Because of a differentiation strategy, management at Walkeasy has decided that the Shoes department and the Insoles department should be measured and tracked separately. When insoles are transferred to the Shoes department, they are inventoried at market prices.
The following information relates to the costs of production for the year for the two departments. Per the company policy, all inventories are kept at stable levels: in other words, sales and production are equal, and purchases of raw materials equal those requisitioned for production.

-Right at the end of the year, Walkeasy received a special order for 300 pairs of shoes. The Shoes department has the capacity to meet the order, but the Insoles department is already at full capacity. Walkeasy has found a supplier of insoles to purchase from when the supply of insoles runs short. However, due to the rush nature of the special order, Walkeasy's supplier would charge them $10,000.
a. What would be the minimum transfer price where the Insoles department would agree to cancel current sales in order to fill this order?
b. Should the Shoes department purchase the insoles from the supplier or from the Insoles department?

Question

Use the following information to answer Problems below
Walkeasy Co. produces shoes and memory foam insoles. The memory foam insoles were originally designed to be a component of the shoes (1 insole per shoe). However, the market for memory foam insoles was profitable enough that management has opted to sell some of the insoles on their own. Any insoles produced beyond what is necessary to meet the needs of shoes production are sold at market prices. Normally, the transfer cost of the insoles is equal to the market sale price. Because of a differentiation strategy, management at Walkeasy has decided that the Shoes department and the Insoles department should be measured and tracked separately. When insoles are transferred to the Shoes department, they are inventoried at market prices.
The following information relates to the costs of production for the year for the two departments. Per the company policy, all inventories are kept at stable levels: in other words, sales and production are equal, and purchases of raw materials equal those requisitioned for production.

-Right at the end of the year, Walkeasy received a special order for 300 pairs of shoes. The Shoes department has the capacity to meet the order, but the Insoles department is already at full capacity. Walkeasy has found a supplier of insoles to purchase from when the supply of insoles runs short. However, due to the rush nature of the special order, Walkeasy's supplier would charge them $10,000. 
a. What would be the minimum transfer price where the Insoles department would agree to cancel current sales in order to fill this order?
b. Should the Shoes department purchase the insoles from the supplier or from the Insoles department?

Quizplus · Accepted Answer

The Answer of Use the following information to answer Problems below
Walkeasy Co. produces shoes and memory foam insoles. The memory foam insoles were originally designed to be a component of the shoes (1 insole per shoe). However, the market for memory foam insoles was profitable enough that management has opted to sell some of the insoles on their own. Any insoles produced beyond what is necessary to meet the needs of shoes production are sold at market prices. Normally, the transfer cost of the insoles is equal to the market sale price. Because of a differentiation strategy, management at Walkeasy has decided that the Shoes department and the Insoles department should be measured and tracked separately. When insoles are transferred to the Shoes department, they are inventoried at market prices.
The following information relates to the costs of production for the year for the two departments. Per the company policy, all inventories are kept at stable levels: in other words, sales and production are equal, and purchases of raw materials equal those requisitioned for production.

-Right at the end of the year, Walkeasy received a special order for 300 pairs of shoes. The Shoes department has the capacity to meet the order, but the Insoles department is already at full capacity. Walkeasy has found a supplier of insoles to purchase from when the supply of insoles runs short. However, due to the rush nature of the special order, Walkeasy's supplier would charge them $10,000. 
a. What would be the minimum transfer price where the Insoles department would agree to cancel current sales in order to fill this order?
b. Should the Shoes department purchase the insoles from the supplier or from the Insoles department?

Use the Following Information to Answer Problems Below