Large, diversified companies often will sell products/components from one division to another division rather than purchase from an outside supplier. Transfer price is the term used to describe the amount one division pays to another division within the same company to purchase a component part. Therefore, if are the Boat Hull Manufacturing Company and we produce boat parts at the manufacturing facility in Virginia. The managerial accountant reported that Boat Hull Manufacturing manufactures parts to repair the container ships that import products from China. The main part that Boat Hull Manufacturing produces is the T24 part. The Port Department produces the T24 part at the Boat Hull Manufacturing facility in Virginia. The managerial accountant reported that the Deport Department could also produce the T24 part because there is excess capacity at the facility. The managerial accountant reported the current market price of the T24 part is $420 and reported the following manufacturing cost and expenses data: Boat Hull Manufacturing Manufacturing Costs and Variable Expense Report T24 Part Direct materials $905 Direct labor $182 Variable manufacturing overhead $110 Fixed manufacturing overhead (current production level) $140 Variable selling expenses (only incurred on sales to outside consumers) $80 What is the highest transfer price the selling division would receive, and the buying division would pay, for the T24 part? Explain your answer.
Large, diversified companies often will sell products/components from one division to another division rather than purchase from an outside supplier. Transfer price is the term used to describe the amount one division pays to another division within the same company to purchase a component part.
Therefore, if are the Boat Hull Manufacturing Company and we produce boat parts at the manufacturing facility in Virginia. The
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Boat Hull Manufacturing T24 Part
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Direct materials
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$905
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Direct labor
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$182
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Variable manufacturing overhead
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$110
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Fixed manufacturing overhead (current production level)
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$140
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Variable selling expenses (only incurred on sales to outside consumers)
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$80
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What is the highest transfer price the selling division would receive, and the buying division would pay, for the T24 part? Explain your answer.
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