Textbook Problem

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.