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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Multiple-Choice Questions 11–9 and 11–10:

Division A manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing.

Refer to the information above. If Division A is operating at full capacity, the maximum transfer price (the ceiling of the bargaining range) is

  1. a. $38.
  2. b. $50.
  3. c. $44.
  4. d. $47.
  5. e. There is no bargaining range.

To determine

Identify the correct statement.

Explanation

Transfer Price:

The amount of price charged by the selling department for a component to the purchasing department of a similar company is known as transfer price.

b.

The transfer price which would leave the purchasing division not worse off if the product was purchased from another division of a company rather than the outside market is known as maximum transfer price. As Division A is operating at its full capacity, the maximum transfer price will be $50. This is because the product will be sold to outside parties at the same price...

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