Answered: General Transfer Pricing Rule; Goal…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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General Transfer Pricing Rule; Goal Congruence American Motors Inc. is divided, for performance evaluation purposes, into several divisions. The Automobile Division of American Motors
purchases most of its transmission systems from another unit of the company. The Transmission
Division’s incremental cost for manufacturing a standard transmission is approximately $1,350 per
unit. This division is currently working at 75% of capacity. The current market price for a standard
transmission is approximately $1,875.
Required
1. Using the general transfer pricing rule presented in the chapter, what is the minimum price at which the
Transmission Division would sell its output to the Automobile Division?
a. $1,013
b. $1,350
c. $1,613
d. $1,875

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