The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry childrenor cargo. The trailers have a retail price of $200 each. Each trailer incurs $80 of variable manufacturingcosts. The Trailer division has capacity for 40,000 trailers per year and incurs fixed costs of $1,000,000per year. Assume the Assembly division of Baxter Bicycles wants to buy 15,000 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles’s divisions? Explain.
The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry childrenor cargo. The trailers have a retail price of $200 each. Each trailer incurs $80 of variable manufacturingcosts. The Trailer division has capacity for 40,000 trailers per year and incurs fixed costs of $1,000,000per year. Assume the Assembly division of Baxter Bicycles wants to buy 15,000 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles’s divisions? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children
or cargo. The trailers have a retail price of $200 each. Each trailer incurs $80 of variable
costs.
per year. Assume the Assembly division of Baxter Bicycles wants to buy 15,000 trailers per year from the
Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers,
what price should be used on transfers between Baxter Bicycles’s divisions? Explain.
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