Question

number 16

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 16. Refer to question 14. How should a transfer price be determined to achieve goal congruence? a. Use market price because the selling c. Negotiate a transfer price between the division is operating at full capacity minimum and maximum transfer price b. Use market price because the selling d. There is no transfer price possible in this division is operating with excess capacity case since X Co. would be better off buying the product from an outside supplier.

Answer 1

Q14)
	Maximum transfer price would be the price at which B can purchase from outside suppliers
	I.e. $84 per unit
	Therefore option C is correct.
Q15)	Since S Division has excess capacity of the production
	there is not an opportunity cost for selling division B
	therefore minimum transfer price would be
	variable costs to produce a unit
	Direct Material			$          16
	Direct Labor			$             8
	Variable Overhead			$             6
	Total			$          30
	Therefore the option "D" is correct.
16)	The correct option is "C"
	Explanation: In between Minimum and maximum transfer price
		both divisions would not have any loss of contribution.
		And overall company basis there would not be a loss of profit
		to the company.