Question

Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $21. Cost information for the blade is: Variable product cost $9.70 5.50 Fixed cost Total product cost $15.20 Tavaris needs 15,000 units of the 2.6 cm blade per year. Alamosa Division is at full capacity (90,000 units of the blade). Required: Round your answers to the nearest cent. 1. If Carreker, Inc., has a transfer pricing policy that requires transfer at full product cost, what would the transfer price be? $ 21 per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price? Alamosa Yes Tavaris

Answer 1

Sslution Market price 21 Variable cost fixed cost 5o5D 15.20 Total Cost 15000 Requar ement Full copacy Capadlty (000)

At Jull product cot 16.20 Alamesa No Stnce Actve Market availale Tavarde At ful pouct Cost + 25 % At ul prdwet cost 5.2 Add: Marin Transjer prdce Alamesa Stn ce t can have more No Parete byselling n exlernal maket TaNands Ye 9.구0 Vartalsle Cest fixed cest 2. ao Tmanor pre 170 Shee t can have mre pt Alamosa No by ellsngin extenal merket Tavaus YuR

4 Capacty 90000 65000 Market avallable 250o0 Tdle apacty Minimum Tans p ce Lsince dle copacty is aval lable) 4.70 Alanos a Prce in extenal Maket) Tavaris 21.o0