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Explain what is motor division maximum transfer price

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Reference no: EM132714479

A manufacturer of small appliances has Parts Division, which produces at capacity parts that are used by the Motor Division. The parts can also be sold to other manufacturers and to wholesalers at a market price of 8. Operating at 70% capacity, the Motor Division receives a special order for 100,000 motors at a price of 30.

Full manufacturing cost of the motors is:

Direct materials - 10
Transferred-in part - 8
Direct labor - 2
Variable OH - 1
Fixed OH - 10
Total cost - 31

The motor includes a part transferred in from the Parts Division at a market-based transfer price of 8.

Problem A. Is the transfer price of Parts Division too high to have the Motor Division reject the offer?

Problem B. What is Parts Division's minimum transfer price?

Problem C. What's Motor Division's maximum transfer price?

Problem D. What are Motor Division's relevant costs excluding transfer price?

Problem E. What is the best transfer price?

Reference no: EM132714479

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