The Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands. Relevant facts for Production are as follows: Sales Price to Outsiders.............................................................$28.50 per Pcs Variable Cost to Produce...........................................................$18.00 per Pcs Fixed Costs ................................................................................$100,000 per Month The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing: Marketing is operating far below its capacity. Sales Price....................................................................................$40 per Pcs Variable Marketing Costs.............................................................$1 per Pcs The company’s variable manufacturing and marketing costs are differential to this decision, while fixed manufacturing and marketing costs are not. Questions: If the transfer price is set at $28.50, what effect will this have on the minimum price set by the Marketing manager? How it change if the Production Division was operating at full capacity?
The Mandalorian Company has two divisions, Production and Marketing. Production manufactures Beskar Head Armour for Knights of the Old Republic, which it sells to both the Marketing Division and to other retailers (the latter under a different brand name). Marketing operates several small armour stores in shopping centers throughout Corruscant. Marketing sells both Beskar Head Armour and other brands.
Relevant facts for Production are as follows:
Sales Price to Outsiders.............................................................$28.50 per Pcs
Variable Cost to Produce...........................................................$18.00 per Pcs
Fixed Costs ................................................................................$100,000 per Month
The following data pertain to the sale of Mandalorian Company Beskar Head Armour by Marketing:
Marketing is operating far below its capacity.
Sales Price....................................................................................$40 per Pcs
Variable Marketing Costs.............................................................$1 per Pcs
The company’s variable manufacturing and marketing costs are differential to this decision, while fixed manufacturing and marketing costs are not.
Questions:
- If the transfer price is set at $28.50, what effect will this have on the minimum price set by the Marketing manager?
- How it change if the Production Division was operating at full capacity?
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