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 2.5 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $25. Cost information for the blade is: Variable product cost $ 9.40 Fixed cost 5.00 Total product cost $14.40 Tavaris needs 18,000 units of the 2.5 cm blade per year. Alamosa Division is at full capacity (84,000 units of the blade). Required: 1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be? $ fill in the blank 1per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price? 2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.50 of selling and distribution expense by selling to Tavaris Division. Which division sets the minimum transfer price, and what is it? Round your answers to the nearest cent, if needed. $ fill in the blank 4per unit Which division sets the maximum transfer price, and what is it? $ fill in the blank 6per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer somewhere in the bargaining range? 3. What if Alamosa Division plans to produce and sell only 69,000 units of the 2.5 cm blade next year? Which division sets the minimum transfer price, and what is it? Round your answers to the nearest cent, if needed. $ fill in the blank 9per unit Which division sets the maximum transfer price, and what is it? $ fill in the blank 11per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer somewhere in the bargaining range?
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 2.5 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $25. Cost information for the blade is:
| Variable product cost | $ 9.40 |
| Fixed cost | 5.00 |
| Total product cost | $14.40 |
Tavaris needs 18,000 units of the 2.5 cm blade per year. Alamosa Division is at full capacity (84,000 units of the blade).
Required:
1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be?
$ fill in the blank 1per unit
Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price?
2. Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.50 of selling and distribution expense by selling to Tavaris Division. Which division sets the minimum transfer price, and what is it? Round your answers to the nearest cent, if needed.
$ fill in the blank 4per unit
Which division sets the maximum transfer price, and what is it?
$ fill in the blank 6per unit
Do you suppose that Alamosa and Tavaris divisions would choose to transfer somewhere in the bargaining range?
3. What if Alamosa Division plans to produce and sell only 69,000 units of the 2.5 cm blade next year? Which division sets the minimum transfer price, and what is it? Round your answers to the nearest cent, if needed.
$ fill in the blank 9per unit
Which division sets the maximum transfer price, and what is it?
$ fill in the blank 11per unit
Do you suppose that Alamosa and Tavaris divisions would choose to transfer somewhere in the bargaining range?
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