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Calculate the minimum transfer price

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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 300

SG Selling price to Home Depot/Lowes 580

GS can purchase comparable barbeques from a Weber BBQ for $485. To avoid too much reliance on an external supplier, Gibco management wants SG to provide 17,000 barbeques per year at a transfer price of $485 per unit to GS BBQ Stores. GS sells these barbeques for $850. SG is currently operating at full capacity. By selling to GS, SG can avoid $9 per unit of variable selling costs. SG manufactures a total of 110,000 barbeques a year.

Required -

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

-Calculate the increase (decrease) in total contribution margin for Gibco for the above transfer price for 17,000.

-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 $485 or $580? SHOW YOUR CALCULATIONS PROVING YOUR ANSWER.

-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 $580?SHOW YOUR CALCULATIONS PROVING YOUR ANSWER.

Reference no: EM133016161

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