Transfer Pricing Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a tine of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $40. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers 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? 2. What is the minimum transfer price? Which division sets it? 3. Conceptual Connection: If the transfer takes place, what will be the transfer price?
Transfer Pricing Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a tine of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $40. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers 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? 2. What is the minimum transfer price? Which division sets it? 3. Conceptual Connection: If the transfer takes place, what will be the transfer price?
Chapter1: Financial Statements And Business Decisions
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![Transfer Pricing
Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels
located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside
supplier for $40. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full
product cost of a dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000
dressers per year; the Furniture Division can make up to 50,000 dressers 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?
2. What is the minimum transfer price?
Which division sets it?
3. Conceptual Connection: If the transfer takes place, what will be the transfer price?
Anne it matter whathne ne ant the transfer takne nison?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7b3a5a8-62f8-422a-9e49-23846b36685e%2Fffd766f8-b6a6-4d33-bd10-6d44d0069a5e%2Fpxglex_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Transfer Pricing
Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels
located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside
supplier for $40. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full
product cost of a dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000
dressers per year; the Furniture Division can make up to 50,000 dressers 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?
2. What is the minimum transfer price?
Which division sets it?
3. Conceptual Connection: If the transfer takes place, what will be the transfer price?
Anne it matter whathne ne ant the transfer takne nison?
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