Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $ 77 $ 55 Variable cost per unit Total fixed costs Capacity in (units) $ 432,000 27,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $74 per unit and would substitute the part made by Division A. Division B requires 5,200 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?

Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $ 77 $ 55 Variable cost per unit Total fixed costs Capacity in (units) $ 432,000 27,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $74 per unit and would substitute the part made by Division A. Division B requires 5,200 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Spark limited has two divisions assembly and electrical the assembly division transfers partially completed components to the electrical division at a predetermined price tye assembly division standard variable production cost per unit is 550 this division has spare capacity and it could sell all its components to outside buyers at 680 per unit in a perfectly competitive market required determine transfr price using general rule What transfer price would you recommend if there was no outside market for the transfered component and the assembly division has sapre capacity explain how negotion between supplying and buying units may be used to set transfer prices how does this relate to the general transfer pricing rule
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