Question

13. For the following questions (13-18) or the following questions (13-18) about transfer pricing, assume the organization is X Co. Division S produces a component that can be sold to outside customers at a fair market price or to Division B at a transfer price. Division B uses the component to produce a finished product it sells to outside customers. Division B can also purchase the component from an outside supplier, Co. O at a fair market price. A transfer pricing system should: a. maximize the transfer price c. maintain common and harmonious goals between the divisions and the entire firm d. none of the above b. minimize the transfer price 14. Division S produces a small motor that can be used in Division B's final blender product. B has been purchasing the motor from Co. O for $84/unit. Division S's manager has approached the manager of Division B about selling these motors to Division B. Division S incurs these unit costs: Direct materials $16. Direct labor $8. Variable overhead $6, Fixed overhead $24 Currently, Division Scan produce 150,000 motors but is only producing 120,000. Div. B needs 20,000 units per year. The maximum transfer price should be: a. $30 c. $84 b. $$54 d. $24 15. Refer to the data in question 14. The minimum transfer price should be: a. $84 c. $54 b. $24 d. $30
number 13,14,15 please

Answer 1

13. c. Maintain common and harmonious goals between the divisions and the entire firm. Transfer pricing strategy should be such that, even if one division of the company suffers losses the company as a whole should be benefitted.

14. c. 84 the maximum transfer cannot exceed the amount that B can buy from outside, the range of negotiation is 54 - 84

15. c. 54, the minimum in the range as calculated above is 54. Which is the cost to division S.