d. What is Mogi Corp.’s operating profit if all 40,000 gallon of final product can be sold for $55 per gallon? $Answer I need answer for D, thank you!
Transfer pricing
Mogi Corp. manufactures one primary product, which is processed through two divisions (P and R). Costs for each division are:
| P | R | |
|---|---|---|
| Variable cost per gallon | $3 | $15 |
| Fixed cost per gallon* | 2 | 12 |
* Based on production of 25,000 and 40,000 gallons for P and R respectively.
P Division produces 25,000 gallons per month. R Division uses 40,000 gallons per month; of that, 25,000 gallons are purchased internally and 15,000 are purchased externally at $10 per gallon. After processing through R Division, a gallon of final product can be sold for $55.
a. What would be P’s transfer price to R Division if the price is set at 180 percent of variable cost?
Answer: 5.4
b. What would be P’s transfer price to R Division if the price is set at 130 percent of full cost?
Answer: 6.5
c. What would be P’s transfer price to R Division if the price is set at market value?
Answer: 10
d. What is Mogi Corp.’s operating profit if all 40,000 gallon of final product can be sold for $55 per gallon? $Answer
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