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 $25. Cost information for the blade is: Variable product cost $ 9.70 Fixed cost 5.30 Total product cost $15.00 Tavaris needs 18,000 units of the 2.6 cm blade per year. Alamosa Division is at full capacity (88,000 units of the blade). Required: 1. If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be? $ per unit Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price?

Answer 1

Part-1

The Transfer Price at market Price will be $25

Alamosa:- , yes , because they are getting market price i , hence they will wiiling to transfer at transfer Price

Tavaris, Yes, because Price is same as currently in Market.

Part-2

The Minimum Transfer Price will be (25-$1.75) i.e. $23.25

The Maximum Transfer Price will be $25

The Minimum transfer Price will be Fixed by Almosa Division

The Maimum transfer Price will be Fixed by Tavaris Division

Yes, The Alamosa and tavaris division would choose to transfer somewhere in the bargaining range

Part-3

The Minimum Transfer Price will be $25

The Maximum Transfer Price will be $25

The Minimum transfer Price will be Fixed by Almosa Division

The Maimum transfer Price will be Fixed by Tavaris Division

Yes, The Alamosa and tavaris division would not choose to transfer somewhere in the bargaining range