Hoo Headrests is a division of Wahoo Autos, an automobile manufacturer that produces SUVs (SUVHoo division) and trucks (TruckHoo Division). Hoo produces headrests that are used in both vehicle types and therefore sells its products to both divisions as well as to other auto manufacturers. The division managers will negotiate a transfer price. The following information pertains to the products of Hoo Headrests: Selling price of headrests to external customers Unit variable cost Capacity $60 $42 200,000 units Hoo Headrests is operating at full capacity (therefore, it has no excess capacity). A savings of $4 per unit will result if the headrests are sold internally. Wahoo Autos can purchase a similar headrest from an outside vendor for $57. What is the minimum transfer price? $56 $38 $60 $42 $18 $57 $45
Hoo Headrests is a division of Wahoo Autos, an automobile manufacturer that produces SUVs (SUVHoo division) and trucks (TruckHoo Division). Hoo produces headrests that are used in both vehicle types and therefore sells its products to both divisions as well as to other auto manufacturers. The division managers will negotiate a transfer price. The following information pertains to the products of Hoo Headrests: Selling price of headrests to external customers Unit variable cost Capacity $60 $42 200,000 units Hoo Headrests is operating at full capacity (therefore, it has no excess capacity). A savings of $4 per unit will result if the headrests are sold internally. Wahoo Autos can purchase a similar headrest from an outside vendor for $57. What is the minimum transfer price? $56 $38 $60 $42 $18 $57 $45
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Hoo Headrests is a division of Wahoo Autos, an automobile manufacturer that
produces SUVs (SUVHoo division) and trucks (TruckHoo Division). Hoo produces
headrests that are used in both vehicle types and therefore sells its products to
both divisions as well as to other auto manufacturers. The division managers will
negotiate a transfer price. The following information pertains to the products of
Hoo Headrests:
Selling price of headrests to external customers
Unit variable cost
Capacity
$60
$42
200,000 units
Hoo Headrests is operating at full capacity (therefore, it has no excess capacity). A
savings of $4 per unit will result if the headrests are sold internally. Wahoo Autos
can purchase a similar headrest from an outside vendor for $57.
What is the minimum transfer price?
$56
$38
$60
$42
$18
○ $57
○ $45
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