Chapter 22, Problem 22.27P

A.

To determine

Transfer Pricing:

This refers to a process of pricing in which one sub-unit of an organization charges a price to another sub-unit for supplying a product or service to the sub-unit of the same organization.

To determine: Whether transfers should be made in division B if there is no unused capacity in division A and whether the market price is the correct transfer price.

B.

To determine

Whether the 800 units should be transferred to division A and at what transfer price.

C.

To determine

The contribution to the company as a whole if the transfer were made and as a manager whether buying can be done at $110.

D.

To determine

The transfer price that would produce the same operating income for division A for the two options (a) cutting the external price to $156, with the certainty that the sale will rise to 2,000 units and (b) maintaining the external price of $160 for the 1,200 units and transferring the 800 units to division B at a price that would produce the same operating income.