Swan Company has two divisions, Hill and Paradise. Hill produces a unit that Paradise could use in its production. Paradise currently is purchasing5,600 units from an outside supPplier for $62. Hill is operating at less than full capacity and has variable costs of $36.80 per unit. The full cost tomanufacture the unit is $49.40. Hill currently sells 450,600 units at a selling price of $67.60. How much will Paradise save by not purchasing fromoutside if a transfer price of $48 is agreed upon?Multiple Choice$78,400$56,600$7,600 more cost$28,600

Solution: Paradise will save = Outside purchase price - Transfer price = 62 - 48 = $14 per unit

Swan Company has two divisions, Hill and Paradise. Hil 5,600 units from an outside supplier for $62. Hill is ope manufacture the unit is $49.40. Hill currently sells 450, outside if a transfer price of $48 is agreed upon?

Swan Company has two divisions, Hill and Paradise. Hil 5,600 units from an outside supplier for $62. Hill is ope manufacture the unit is $49.40. Hill currently sells 450, outside if a transfer price of $48 is agreed upon?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 5EA: Shelby Industries has a capacity to produce 45.000 oak shelves per year and is currently selling...

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Question

Swan Company has two divisions, Hill and Paradise. Hill produces a unit that Paradise could use in its production. Paradise currently is purchasing
5,600 units from an outside supPplier for $62. Hill is operating at less than full capacity and has variable costs of $36.80 per unit. The full cost to
manufacture the unit is $49.40. Hill currently sells 450,600 units at a selling price of $67.60. How much will Paradise save by not purchasing from
outside if a transfer price of $48 is agreed upon?
Multiple Choice
$78,400
$56,600
$7,600 more cost
$28,600

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