Assume that division A’s maximum capacity for this product is 2,000 units per month and sales to the intermediate market are now 1,200 units. Assume that for a variety of reasons, division A will maintain the $160 selling price indefinitely. That is, division A is not considering lowering the price to outsiders even if idle capacity exists. Should 800 units be transferred to division B? At what transfer price? Pertinent transfer price, perfect and imperfect markets. Mountaineer, Ic., has two divi-sions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and divi-sion B assembles the rest of the bicycle onto the frame. There is a market for both the subassemblyand the final product. Each division has been designated as a profit center. The transfer price for thesubassembly has been set at the long-run average market price. The following data are available foreach division:Selling price for final product$280Long-run average selling price for intermediate productIncremental cost per unit for completion in division BIncremental cost per unit in division A160170100The manager of division B has made the following calculation:$280Selling price for final productTransferred-in cost per unit (market)Incremental cost per unit for completionContribution (loss) on product$160170330S (50)

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Answered: Pertinent transfer price, perfect and…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 22BEB: Calculating Transfer Price Teslum Inc. has a number of divisions, including the Machina Division, a...

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Assume that division A’s maximum capacity for this product is 2,000 units per month and sales to the intermediate market are now 1,200 units. Assume that for a variety of reasons, division A will maintain the $160 selling price indefinitely. That is, division A is not considering lowering the price to outsiders even if idle capacity exists. Should 800 units be transferred to division B? At what transfer price?

Pertinent transfer price, perfect and imperfect markets. Mountaineer, Ic., has two divi-
sions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and divi-
sion B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly
and the final product. Each division has been designated as a profit center. The transfer price for the
subassembly has been set at the long-run average market price. The following data are available for
each division:
Selling price for final product
$280
Long-run average selling price for intermediate product
Incremental cost per unit for completion in division B
Incremental cost per unit in division A
160
170
100
The manager of division B has made the following calculation:
$280
Selling price for final product
Transferred-in cost per unit (market)
Incremental cost per unit for completion
Contribution (loss) on product
$160
170
330
S (50)

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