Question

Recently, Jean Bank has opened its own Home-Loan Department and wants the Appraisal Department to perform 1,530 appraisals on all Jean Bank–financed home loans. Bank management feels that the cost of these appraisals to the Home-Loan Department should be $146. The variable cost per appraisal to the Home-Loan Department would be $8 less than those performed for outside customers due to savings in administrative costs.

(a) Determine the minimum transfer price, assuming the Appraisal Department has excess capacity.

Minimum transfer price $

(b) Determine the minimum transfer price, assuming the Appraisal Department has no excess capacity.

Minimum Transfer Price $

(c) Assuming the Appraisal Department has no excess capacity, should management force the department to charge the Home-Loan Department only $146?

Yes or No?

Answer 1