Transfer price between the two divisions

Reference no: EM13131358

Smelly Cigars has two divisions: the Rolling Division and the Box Division. The Box Division produces boxes that can be used by the Rolling Division. The Box Division incurs variable cost of $2.00 per unit, and its fixed cost is $ .50 per unit. The Rolling Division can purchase similar boxes from external suppliers for $3.40. The Box Division sells its boxes to outside companies for $3.50 each. Assuming the Box Division has enough excess capacity to supply all of the Rolling Division's needs, which of the following is the range at which a negotiated transfer price between the two divisions should occur?

a) $2.50 to $3.50

b) $2.00 to $3.40

c) $2.00 to $3.50

d) $2.50 to $3.40

There will be no transfer of containers from the Box Division to the Rolling Division.

Reference no: EM13131358

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