How would the transfer price change

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Electro Ltd has two divisions, assembly and electrical. The assembly division transfers partially completed components to the electrical division at a predetermined transfer price. The assembly division's standard variable production cost per unit is $450. This division has spare capacity, and it could sell all its components to outside buyers at $570 per unit in a perfectly competitive market.

Required:

Problem 1: Determine a transfer price using the general rule.

Problem 2: How would the transfer price change if the assembly division had no spare capacity?

Problem 3: What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity?

Reference no: EM132954783

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