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mhbtelc mhbtelc
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The Machining division makes a component part that the Assembly division needs for a new product. The Machining division's variable cost of manufacturing the component is $25 per unit. The component is also available on the open market at a price of $45 per unit. The Assembly division needs 900 units per year, and the Machining division has excess capacity of 1,000 units.

Required:

a.Determine the cost-based transfer price that the Machining division should charge the
Assembly division.
b.Determine the market-based transfer price that the Machining division should charge
the Assembly division.
c.What arguments will the Machining division's manager and the Assembly division's
manager make in an attempt to get the price each wants?
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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SagxarSagxar
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More solutions for this book are available here
a.$25 + $0 = $25
b.$45
c.The Machining division manager wants to sell the part for $45. He would argue that
the value of the part is $45 and that is what the Assembly division should pay. The Machining division's manager does not want to subsidize the operations of the Assembly division.
The Assembly division manager wants to pay as little as possible but knows that the Machining division manager is not willing to suffer a decline in profit on the transfer. The Assembly manager will argue for a $25 price or something in between $25 and $45. Since the Machining division has unused capacity, anything above the $25 variable cost provides an increase to the Machining division's bottom line.

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mhbtelc Author
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4 months ago
Correct Slight Smile TY
Katey_maree
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Yesterday
You make an excellent tutor!
DaiwalkerX
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2 hours ago
Thanks
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