Illustrate what are the costs and benefits of alternative

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Reference no: EM13126908

Q. Exercise 15-19. Evaluate Transfer Pricing System

Division A offers its product to outside markets for $30. It incurs variable costs of $11 per unit and fixed costs of $75,000 per month based on monthly production of 4,000 units. Division B can acquire the product from an alternate supplier for $31 per unit or from Division A for $30 plus $2 per unit in transportation costs in addition to the transfer price charged by Division A.

Required

a. Illustrate what are the costs and benefits of the alternatives available to Division A and Division B with respect to the transfer of Division A's product? Assume that Division A can market all that it can produce.

b. How would your answer change if Division A had idle capacity sufficient to cover all of Division B's needs?

Reference no: EM13126908

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