TWO PARTS

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Question: TWO PARTS The Molding Division of Cotwold Company manufactures a plastic casing used by the Assem…
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The Molding Division of Cotwold Company manufactures a plastic
casing used by the Assembly Division. This casing is also sold to
external customers for $43 per unit. Variable costs for the casing
are $ 30 per unit and fixed cost is $6 per unit. Cotwold executives
would like for the Molding Division to transfer 26,000 units to the
Assembly Division at a price of $37 per unit.

Assume that the Molding Division is operating at full
capacity.

Should it accept the transfer price proposed by management?

Identify the minimum transfer price that the Molding Division
will accept.

The Molding Division of Cotwold Company manufactures a plastic
casing used by the Assembly Division. This casing is also sold to
external customers for $37 per unit. Variable costs for the casing
are $24 per unit and fixed cost is $5 per unit. Cotwold executives
would like for the Molding Division to transfer 20,000 units to the
Assembly Division at a price of $31 per unit. Assume that the
Molding Division has enough excess capacity to accommodate the
request.   

Should the Molding Division accept the $31 transfer price
proposed by management?

Calculate the effect on Molding Division’s net income if it
accepts the $31 transfer price.

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