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JD has two divisions Engines and Tractors. The Engines Division makes engines for use in JD's Tractors. The Engine Div's variable manufacturing cost is $6,200 per unit; fixed manufacturing costs are $300 per unit. The Engine Div. is currently working at 80% capacity. If the Tractor Division buys the engines on the external market, the cost is $7,000. Using the general transfer pricing rule, what is the minimum price at which the Engine Div. would sell units to the Tractor Div.

JD has two divisions Engines and Tractors. The Engines Division makes engines for use in JD's Tractors. The Engine Div's variable manufacturing cost is $6,200 per unit; fixed manufacturing costs are $300 per unit. The Engine Div. is currently working at 80% capacity. If the Tractor Division buys the engines on the external market, the cost is $7,000. Using the general transfer pricing rule, what is the minimum price at which the Engine Div. would sell units to the Tractor Div.

FINANCIAL ACCOUNTING
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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JD has two divisions Engines and Tractors. The Engines Division makes engines for use in JD's Tractors. The Engine Div's variable manufacturing cost is $6,200 per unit; fixed manufacturing costs are $300 per unit. The Engine Div. is currently working at 80% capacity. If the Tractor Division buys the engines on the external market, the cost is $7,000. Using the general transfer pricing rule, what is the minimum price at which the Engine Div. would sell units to the Tractor Div.
Transcribed Image Text:JD has two divisions Engines and Tractors. The Engines Division makes engines for use in JD's Tractors. The Engine Div's variable manufacturing cost is $6,200 per unit; fixed manufacturing costs are $300 per unit. The Engine Div. is currently working at 80% capacity. If the Tractor Division buys the engines on the external market, the cost is $7,000. Using the general transfer pricing rule, what is the minimum price at which the Engine Div. would sell units to the Tractor Div.
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