Answered: Sales Price per Unit Variable Cost per…

Business

Accounting

Sales Price per Unit Variable Cost per Unit Contribution Margin per Unit $ 18 $ 12

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 3EB: A product has a sales price of $175 and a per-unit contribution margin of $75. What is the...

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Question

Determining transfer pricing

The Watkins Company is decentralized, and divisions are considered investment centers. Watkins specializes in sports equipment, and one division manufactures netting that is used for basketball hoops, soccer goals, and other sports equipment. The Netting Division reports the following information for a heavy-duty basketball hoop net:

The Basketball Equipment Division can purchase a similar heavy-duty net from an outside vendor for $15.

Requirements

1. Determine the negotiable range for the transfer price.

2. What is the minimum transfer price the Netting Division should consider if operating at capacity? Below capacity?

3. What is the maximum transfer price the Basketball Equipment Division should consider?

Sales Price per Unit
Variable Cost per Unit
Contribution Margin per Unit
$ 18
$ 12

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