Going Places, Inc., manufactures a variety of luggage for airline passengers. The company has several luggage production divisions, including the Suitable Cases Division, as well as a wholly owned subsidiary, It’s Mine, that manufactures small identification tags used on luggage. Each piece of luggage that Suitable Cases produces has two identification tags for which it previously paid the going market price of $2 each. Financial information for Suitable Cases and It’s Mine follows:
Suitable Cases Division It’s Mine
Sales
4,500 bags × $150.00 each $ 675,000
200,000 tags × $2.00 each $ 400,000
Variable expenses
4,500 bags × $85.00 each 382,500
200,000 tags × $0.50 each 100,000
It’s Mine has a production capacity of 250,000 tags.
Required:
1
Determine how much Going Places will save on each tag if the Suitable Cases Division obtains them from It’s Mine instead of an external supplier. (Round your answer to 2 decimal places.)
Savingsper tag
2
Determine the maximum and minimum transfer prices for the tags. (Round your answers to 2 decimal places.)
Maximum transfer price
Minimum transfer price
3
Suppose Going Places has set a transfer price policy of variable cost plus 60 percent for all related-party transactions. Determine how much each party will benefit from the internal transfer. (Round your answers to 2 decimal places.)
Suitable cases division
It’s mine
4
Determine the mutually beneficial transfer price. (Round your answer to 2 decimal places.)
Mutually beneficial transfer price