Concord Company has two divisions, Rice and Pine. Rice produces an item that Pine could use in its production. Pine currently is purchasing 12,000 units from an outside supplier for $18 per unit. Rice is currently operating at less than its full capacity of 500,000 units and has variable costs of $10 per unit. The full cost to manufacture the unit is $14. Rice currently sells 450,000 units at a selling price of $20 per unit.
a. What will be the effect on Concord Company's operating profit if the transfer is made internally?
b. What is the minimum transfer price from Rice's perspective?
c. What is the maximum transfer price from Pine' perspective?

Question

Quizplus · Accepted Answer

The Answer of Concord Company has two divisions, Rice and Pine. Rice produces an item that Pine could use in its production. Pine currently is purchasing 12,000 units from an outside supplier for $18 per unit. Rice is currently operating at less than its full capacity of 500,000 units and has variable costs of $10 per unit. The full cost to manufacture the unit is $14. Rice currently sells 450,000 units at a selling price of $20 per unit.
a. What will be the effect on Concord Company's operating profit if the transfer is made internally?
b. What is the minimum transfer price from Rice's perspective?
c. What is the maximum transfer price from Pine' perspective?

Concord Company Has Two Divisions, Rice and Pine