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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

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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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