Question

Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps,...

Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines.

Indian Division produces the h20-model pump that can be used by Maple Division in the production of motors that regulate the raising and lowering of the boat engine's stern drive unit. The market price of the h20-model is $720, and the full cost of the h20-model is $540.

Required:

1. If Burt has a transfer pricing policy that requires transfer at full cost, what will the transfer price be?
$

Do you suppose that Indian and Maple divisions will choose to transfer at that price?

Maple Division chooses to transfer
Indian Division refuses to transfer

2. If Burt has a transfer pricing policy that requires transfer at market price, what would the transfer price be?
$

Do you suppose that Indian and Maple divisions would choose to transfer at that price?

Maple Division chooses to transfer
Indian Division chooses to transfer

3. Now suppose that Burt allows negotiated transfer pricing and that Indian Division can avoid $120 of selling expense by selling to Maple Division.

Which division sets the minimum transfer price?
Indian Division

What is the minimum transfer price?
$

Which division sets the maximum transfer price?
Maple Division

What is the maximum transfer price?
$

Do you suppose that Indian and Maple divisions would choose to transfer somewhere in the bargaining range?
Yes

Homework Answers

Answer #1

1)Transfer price : $ 540

Maple division accept the transfer as price is lower than market price while Indian division refuses to transfer

2)Transfer price : $720

Both division accept the transfer as for maple division there will be no effect as same can be purchased from market at 720 and Indian division will be at profit

3)

A)Indian division will set the minimum transfer price as it will transfer the units

Minimum price= 540 -120 =$ 420

b)Maple division will set maximum price that will be used for purpose

Maximum price = market price above which maple division will not buy as same can be purchased from market = $ 720

c)Yes ,between 420-720 as under this range both division will be in profit .

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sports Plus Inc. has a number of divisions, including the Nylon Plus Division, producer of nylon,...
Sports Plus Inc. has a number of divisions, including the Nylon Plus Division, producer of nylon, and the Racket Division, a manufacturer of tennis rackets. Nylon Plus Division produces nylon string that can be used by Racket Division in the production of tennis rackets. The market price of the nylon is $5.30. Cost information for the nylon is:   Variable Product Cost $ 0.65 Fixed Cost   3.75      Total Product Cost $ 4.40 Racket Division needs 10,000 units of nylon per year....
Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa...
Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $22.00. Cost information for the blade is: Variable product cost $ 9.80 Fixed cost 6.20 Total product cost $16.00 Tavaris needs 15,000 units...
Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa...
Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $22.00. Cost information for the blade is: Variable product cost $ 10.00 Fixed cost 5.60 Total product cost $15.60 Tavaris needs 15,000 units...
Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The...
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...
Aulman Inc. has a number of divisions including a Furniture Division and a Motel Division. The...
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...
Bostonian Inc. has a number of divisions, including Delta Division and ListenNow Division. The ListenNow Division...
Bostonian Inc. has a number of divisions, including Delta Division and ListenNow Division. The ListenNow Division owns and operates a line of MP3 players. Each year the ListenNow Division purchases component AZ in order to manufacture the MP3 players. Currently it purchases this component from an outside supplier for $6.50 per component. The manager of the Delta Division has approached the manager of the ListenNow Division about selling component AZ to the ListenNow Division. The full product cost of component...
Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity...
Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of durian juice concentrate. Juice Division's annual requirement of durian juice concentrate is 8000 units. Fruities Ltd requires that divisions should purchase inputs internally where available, and uses a cost-plus transfer price policy, where transfer price is set at variable cost plus 25 per cent. Therefore, Durian Division always satisfies the demand of the Juice Division first, before selling the...
Germano Products, Inc., has a Pump Division that manufactures and sells a number of products, including...
Germano Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: Capacity in units 75,000 Selling price to outside customers $ 81 Variable cost per unit $ 28 Fixed cost per unit (based on capacity) $ 33 The Pool Products Division is currently purchasing 18,000 of these...
Germano Products, Inc., has a Pump Division that manufactures and sells a number of products, including...
Germano Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: Capacity in units 50,000 Selling price to outside customers $ 63 Variable cost per unit $ 22 Fixed cost per unit (based on capacity) $ 24 The Pool Products Division is currently purchasing 9,000 of these...
Vision Company has two divisions, Pulp Division and Carton Division. Carton Division would like to buy...
Vision Company has two divisions, Pulp Division and Carton Division. Carton Division would like to buy 15,000 tons of pulp from Pulp Division. Currently, Pulp Division is operating at full capacity and is making 50,000 tons of pulp per month. Costs of pulp are as follows: Variable costs $44 per ton Fixed costs $20 per ton The company uses a cost-based transfer pricing and its policy is to set a transfer price of pulp at a 16% markup to the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT