Sales Price per Unit Variable Cost per Unit Contribution Margin per Unit $ 18 $ 12
Determining transfer pricing
The Watkins Company is decentralized, and divisions are considered investment centers. Watkins specializes in sports equipment, and one division manufactures netting that is used for basketball hoops, soccer goals, and other sports equipment. The Netting Division reports the following information for a heavy-duty basketball hoop net:
The Basketball Equipment Division can purchase a similar heavy-duty net from an outside vendor for $15.
Requirements
1. Determine the negotiable range for the transfer price.
2. What is the minimum transfer price the Netting Division should consider if operating at capacity? Below capacity?
3. What is the maximum transfer price the Basketball Equipment Division should consider?
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