Determining Transfer Prices Between Divisions
ABC division of B Corporation sells part X to other companies for 78.50 per unit. According to the company's cost accounting system, the costs to the ABC Corp. to make are:
Direct Material $62.00
Direct Labor $2.00
Variable manufacturing overhead $10.00
Fixed manufacturing overhead $2.00
The XYZ division of B Corporation uses a part much like Part X in one of its products. The XYZ Division can buy this product from an outside supplier for 78.25 per unit. However, the XYZ Division could use Part X instead of this part that it purchases from outside suppliers.
What is the most the XYZ Division would be willing to pay ABC Division for Part X?
What is the most that ABC Divison would be willing to accept from XYZ Division for Part X assuming they have excess capacity? There is weak demand in the market?
What is the most that the ABC Divison would be willing to accept from the XYZ Division for Part X assuming they have no excess capacity? There is a huge demand for Part X in the market.© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/business/accounting/determining-transfer-prices-between-divisions-jl4d