Calculating Transfer PriceBurt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps,and Maple Division, a manufacturer of boat engines.Indian Division produces the h20-model pump that can be used by Maple Division in theproduction of motors that regulate the raising and lowering of the boat engine’s stern drive unit.The market price of the h20-model is $720, and the full cost of the h20-model is $540.Required:1. If Burt has a transfer pricing policy that requires transfer at full cost, what will the transferprice be? Do you suppose that Indian and Maple divisions will choose to transfer at thatprice? 2. If Burt has a transfer pricing policy that requires transfer at market price, what wouldthe transfer price be? Do you suppose that Indian and Maple divisions would choose totransfer at that price?3. Now suppose that Burt allows negotiated transfer pricing and that Indian Divisioncan avoid $120 of selling expense by selling to Maple Division. Which division sets theminimum transfer price, and what is it? Which division sets the maximum transfer price,and what is it? Do you suppose that Indian and Maple divisions would choose to transfersomewhere in the bargaining range?
Calculating Transfer Price
Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps,
and Maple Division, a manufacturer of boat engines.
Indian Division produces the h20-model pump that can be used by Maple Division in the
production of motors that regulate the raising and lowering of the boat engine’s stern drive unit.
The market price of the h20-model is $720, and the full cost of the h20-model is $540.
Required:
1. If Burt has a transfer pricing policy that requires transfer at full cost, what will the transfer
price be? Do you suppose that Indian and Maple divisions will choose to transfer at that
price?
2. If Burt has a transfer pricing policy that requires transfer at market price, what would
the transfer price be? Do you suppose that Indian and Maple divisions would choose to
transfer at that price?
3. Now suppose that Burt allows negotiated transfer pricing and that Indian Division
can avoid $120 of selling expense by selling to Maple Division. Which division sets the
minimum transfer price, and what is it? Which division sets the maximum transfer price,
and what is it? Do you suppose that Indian and Maple divisions would choose to transfer
somewhere in the bargaining range?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
