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Calculate the minimum transfer price

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Reference no: EM133011722

Question - SG is a division of Gibco and produces barbeques. SG sells these barbeques to big box stores like Home Depot and Lowes, as well as to GS BBQ Stores which is a division of Gibco. The following information is available for SG:

Fixed costs per unit $150

Variable cost per unit 102

SG Selling price to Home Depot/Lowes 542

GS can purchase comparable barbeques from a Weber BBQ for $463. To avoid too much reliance on an external supplier, Gibco management wants SG to provide 19,000 barbeques per year at a transfer price of $475 per unit to GS BBQ Stores. GS sells these barbeques for $900. SG is currently operating at full capacity. By selling to GS, SG can avoid $7 per unit of variable selling costs. SG manufactures a total of 100,000 barbeques a year.

Required -

1. Calculate the minimum transfer price that SG would charge to remain financially neutral.

2. Calculate the increase (decrease) in TOTAL contribution margin for Gibco for the above transfer price you calculated in number 1 for 19,000 units.

3. The tax rate for SG, which is in the USA is 35%, and is 25% for GS which is in Canada. Is it better for Gibco to sell at $542 or $463? By how much? Enter the TOTAL $ advantage at 19,000 units.

4. The tax rate for SG, which is in the USA, is 25%, and is 35% for GS which is in Canada. Is it better for Gibco to sell at $480 or $575? By how much? Enter the TOTAL $ advantage at 19,000 units.

Please explain all calculations in detail so I can understand the mathematical part. Thank you so much!

Reference no: EM133011722

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