Question

Ch The trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The tralers have a retail price of $106 each. Each trailer incurs $48 of variable manufacturing costs. The traller division has capacity for 29,000 trallers per year and incurs fixed costs of $550,000 per year Requi 1. Assume the assembly division of Baxter Bicycles wants to buy 5 ,600 trailers per year from the traller division. Ir the trailer division sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles's divisions? 2. Assume the trailer division currently only sells 10,300 trailers to outside customers, and the assembly division wants to buy 5,600 trailers per year from the trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Next> K Prex 6 of 7

Answer 1

1. Since the trailer division is able to sell all the bicycles to outside customers, if assembly division wants to buy bicycles from it, the transfer price will be same as sold to outside customers I. E. 106.

2. As the whole capacity is not used of trailer division by selling to the outside customer. If it will sell 5600 units to assembly division, it will charge price which is equal to variable cost I. E. 48 but it won't be more than 106