San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow. Manufacturing Assembly Capacity (units) 421,000 221,000 Sales pricea $ 442 $ 1,405 Variable costsb $ 265 $ 522 Fixed costs $ 40,210,000 $ 24,210,000 a For Manufacturing, this is the price to third parties. b For Assembly, this does not include the transfer price paid to Manufacturing. Required: a. Current production levels in Manufacturing are 221,000 units. Assembly requests an additional 61,000 units to produce a special order. What transfer price would you recommend? b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend? c. Suppose Manufacturing is operating at 390,500 units. What transfer price would you recommend? (Round your answer to 2 decimal places.)
San Jose Company operates a Manufacturing Division and an Assembly Division. Both divisions are evaluated as profit centers. Assembly buys components from Manufacturing and assembles them for sale. Manufacturing sells many components to third parties in addition to Assembly. Selected data from the two operations follow.
| Manufacturing | Assembly | |||||
| Capacity (units) | 421,000 | 221,000 | ||||
| Sales pricea | $ | 442 | $ | 1,405 | ||
| Variable costsb | $ | 265 | $ | 522 | ||
| Fixed costs | $ | 40,210,000 | $ | 24,210,000 | ||
a For Manufacturing, this is the price to third parties.
b For Assembly, this does not include the transfer price paid to Manufacturing.
Required:
a. Current production levels in Manufacturing are 221,000 units. Assembly requests an additional 61,000 units to produce a special order. What transfer price would you recommend?
b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?
c. Suppose Manufacturing is operating at 390,500 units. What transfer price would you recommend? (Round your answer to 2 decimal places.)
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