Transfer Pricing 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 dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? $ 40 V Which division sets it? Motel Division 2. What is the minimum transfer price? $ 40 X Which division sets it? Furniture Division 3. Conceptual Connection: If the transfer takes place, what will be the transfer price? $ Does it matter whether or not the transfer takes place?
Transfer Pricing 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 dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? $ 40 V Which division sets it? Motel Division 2. What is the minimum transfer price? $ 40 X Which division sets it? Furniture Division 3. Conceptual Connection: If the transfer takes place, what will be the transfer price? $ Does it matter whether or not the transfer takes place?
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 9EA: Brahma Industries sells vinyl replacement windows to home improvement retailers nationwide. The...
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vi.2
![Transfer Pricing
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 dresser is $29.
The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can
make up to 50,000 dressers per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved.
Required:
1. What is the maximum transfer price?
$
40 V
Which division sets it?
Motel Division
2. What is the minimum transfer price?
$
40 X
Which division sets it?
Furniture Division
3. Conceptual Connection: If the transfer takes place, what will be the transfer price?
$
Does it matter whether or not the transfer takes place?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F05793d05-f36a-4c76-8925-dfe31b2ca1f1%2Fe855c765-d50e-475a-b91c-f5e80e871ff9%2Fr2h724e_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Transfer Pricing
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 dresser is $29.
The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can
make up to 50,000 dressers per year. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved.
Required:
1. What is the maximum transfer price?
$
40 V
Which division sets it?
Motel Division
2. What is the minimum transfer price?
$
40 X
Which division sets it?
Furniture Division
3. Conceptual Connection: If the transfer takes place, what will be the transfer price?
$
Does it matter whether or not the transfer takes place?
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