Chapter 22, Problem 22.27P

1.

To determine

The minimum transfer price at which the SD manager would be willing to sell the screens to the AD.

Given information:

The market price is $100 per screen.

The variable marketing and distribution costs are $8 per screen.

The incremental manufacturing cost is $65 per screen.

The price at which AD purchases screen is $100 per screen.

The purchasing cost is $7 per screen.

2.

To determine

The maximum transfer price at which the AD manager would be willing to purchase the screens from the SD.

Given information:

The market price is $100 per screen.

The variable marketing and distribution costs are $8 per screen.

The incremental manufacturing cost is $65 per screen.

The price at which AD purchases screen is $100 per screen.

The purchasing cost is $7 per screen.

3.a.

To determine

The minimum transfer price at which the SD manager would be willing to sell the screens to the AD.

Given information:

SD can sell only 70% of its output capacity of 20,000 screens per month.

The AD can assemble and sell more than 20,000 sets per month.

3.b.

To determine

From the viewpoint of the management of the company, the amount of the SD output to be transferred to AD.

3.c.

To determine

The resulting transfer price if the managers split the difference and whether this price achieves the desired outcome.