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Transfer Pricing Algodones Inc. has a number of divisions, including a Mattress Division and a Furniture Division. The Furniture Division owns and operates a chain of furniture stores in the Midwest. Each year, the Furniture Division purchases mattresses for its bedroom suites. Currently, it purchases a basic mattress from an outside supplier for $230. The manager of the Mattress Division has approached the manager of the Furniture Division about selling mattresses to the Furniture Division. The full product cost of a mattress is $160. The Mattress Division can sell all of the mattresses it makes to outside companies for $230. The Furniture Division needs 10,000 mattresses per year; the Mattress Division can make up to 50,000 mattresses per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? $ Which division sets it? Furniture Division ✔ 2. What is the minimum transfer price? $ Which division sets it? Mattress Division ✓ 3. Conceptual Connection: If the transfer takes place, what will be the transfer price? Does it matter whether or not the transfer takes place? No

Transfer Pricing Algodones Inc. has a number of divisions, including a Mattress Division and a Furniture Division. The Furniture Division owns and operates a chain of furniture stores in the Midwest. Each year, the Furniture Division purchases mattresses for its bedroom suites. Currently, it purchases a basic mattress from an outside supplier for $230. The manager of the Mattress Division has approached the manager of the Furniture Division about selling mattresses to the Furniture Division. The full product cost of a mattress is $160. The Mattress Division can sell all of the mattresses it makes to outside companies for $230. The Furniture Division needs 10,000 mattresses per year; the Mattress Division can make up to 50,000 mattresses per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? $ Which division sets it? Furniture Division ✔ 2. What is the minimum transfer price? $ Which division sets it? Mattress Division ✓ 3. Conceptual Connection: If the transfer takes place, what will be the transfer price? Does it matter whether or not the transfer takes place? No

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter10: Decentralization: Responsibility Accounting, Performance Evaluation, And Transfer Pricing
Section: Chapter Questions
Problem 4CE
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Transfer Pricing Algodones Inc. has a number of divisions, including a Mattress Division and a Furniture Division. The Furniture Division owns and operates a chain of furniture stores in the Midwest. Each year, the Furniture Division purchases mattresses for its bedroom suites. Currently, it purchases a basic mattress from an outside supplier for $230. The manager of the Mattress Division has approached the manager of the Furniture Division about selling mattresses to the Furniture Division. The full product cost of a mattress is $160. The Mattress Division can sell all of the mattresses it makes to outside companies for $230. The Furniture Division needs 10,000 mattresses per year; the Mattress Division can make up to 50,000 mattresses per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? $ Which division sets it? Furniture Division ✓ 2. What is the minimum transfer price? $ Which division sets it? Mattress Division 3. Conceptual Connection: If the transfer takes place, what will be the transfer price? Does it matter whether or not the transfer takes place? No ✔
Transcribed Image Text:Transfer Pricing Algodones Inc. has a number of divisions, including a Mattress Division and a Furniture Division. The Furniture Division owns and operates a chain of furniture stores in the Midwest. Each year, the Furniture Division purchases mattresses for its bedroom suites. Currently, it purchases a basic mattress from an outside supplier for $230. The manager of the Mattress Division has approached the manager of the Furniture Division about selling mattresses to the Furniture Division. The full product cost of a mattress is $160. The Mattress Division can sell all of the mattresses it makes to outside companies for $230. The Furniture Division needs 10,000 mattresses per year; the Mattress Division can make up to 50,000 mattresses per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? $ Which division sets it? Furniture Division ✓ 2. What is the minimum transfer price? $ Which division sets it? Mattress Division 3. Conceptual Connection: If the transfer takes place, what will be the transfer price? Does it matter whether or not the transfer takes place? No ✔
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