Question

3 Omni Enterprises Ltd. has a number of divisions, including Omni-Press Division, a producer of high-end air compressors, and Om. Construct Division, a homebuilder 5 Omni-Press produces the Xtreme 880 air compressor that can be used by Omni-Construct to build residential homes 6 The market price of the Xtreme 880 is $ 1.600 $ The full cost of the unit is 975 1) a) Omni's transfer policy require transfer at full cost, what will the transfer price be? b) Do you suppose both divisions will choose to transfer at that price? 2) a) Omni's transfer policy require transfer at market price what will the transfer price be?

Answer 1

1. A) transfer price at full cost = $975

B) No omni press may not want to transfer because it is getting much more in market.

2. A) transfer price at market price = $1600

B) yes they would transfer because both division don't have to pay or receive any difference than they already are.

3. A) minimum price would be set by omni press. It will be= $1600 - $225 = $1375

B) Maximum Price would be set by omni construct which will be equal to market price I.e. $1600

C) yes they will transfer at somewhere in between the ranges because it is omni press will be earning some profit , also it would cost less than market price for omni construct. What the transfer price will be depends upon how divisional manager negotiates.

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