Question
approached the manager of the printing operation offering to pay
(a)
Your answer is correct.
Assume that the printing operation is booked solid for the next 2 years, and it would have to cancel an obligation with an outside customer in order to meet the needs of the internal division. (Round transfer price to 4 decimal places, e.g. 0.1888 .)
Printing should be done
Externally
Minimum transfer price
$
eTextbook and Media
Attempts: 1 of 10 used
(b)
Assume that the printing operation has available capacity. (Round Transfer price to 3 decimal places, e.g. 0.189.)
Printing should be done
(a)
Externally
$
eTextbook and Media
(b)
Ask by Potter Bob. in the United States
Mar 27,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
(a) Booked-solid capacity
- Printing should be done: Externally
- Minimum transfer price: $0.0080
(b) Available capacity
- Printing should be done: Internally
- Minimum transfer price: $0.003
Solution
(a) Booked‐solid capacity
-
When the printing operation is fully booked, any internal job displaces an external order.
-
The external order earns a revenue of
per page while incurring a variable cost of per page. Thus, the lost contribution (opportunity cost) per page is -
If the internal job is accepted, the printing operation still incurs its variable cost of
per page and loses the external contribution of . Therefore, the minimum acceptable transfer price is -
Since the book division’s offer of
per page is below this minimum, the printing should be done externally.
Answer for (a):
- Printing should be done: Externally
- Minimum transfer price:
(b) Available capacity
-
With available capacity, the printing operation does not lose any external order. The only relevant cost is the variable cost.
-
The variable cost per page is
. -
Therefore, the minimum acceptable transfer price is set at the variable cost, which is
-
As the book division’s offer of
per page exceeds this cost, it makes sense for the printing operation to print the book internally, benefiting both divisions.
Answer for (b):
- Printing should be done: Internally
- Minimum transfer price:
Answered by UpStudy AI and reviewed by a Professional Tutor
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Simplify this solution Mind Expander
To determine the best option for printing under the given scenarios, let’s break it down step by step!
In situation (a), since the printing operation is already booked solid and meeting the internal division’s printing needs would mean canceling an obligation with an outside customer, it is crucial to keep that contract intact. Thus, the operation should opt for external printing. The appropriate transfer price, which is the minimum acceptable price considering the variable cost of
In situation (b), if the printing operation has available capacity, then internal printing could be more beneficial. The minimum transfer price would be based on the variable costs incurred in the printing operation, which is
