Determining the transfer price

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Reference no: EM136083

A company authorizes its decentralized units to "lease" space to one another. Uptown division has leased some of its idle warehouse space to Downtown division for $60 per sq ft per month. Currently, Uptown obtained a new 5 year contract, which may increase its production adequately so that the warehouse space is even more valuable to it. Uptown has notified downtown that he rental price may increase to $210 per sq ft. Downtown will lease space at$120 per sq ft in another warehouse from an outside corporation but prefers to stay in the shared facilities. Downtowns manager states that she would prefer not to shift. If downtown division continues to utilize the space uptown will have to rent other space for $180 per sq ft. per month. (The difference in rental prices occurs because uptown division needs a more substantial warehouse building than downtown division does)

Recommend a transfer price and describe your reasons for choosing that price and determining the transfer price.

Reference no: EM136083

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