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What is the maximum transfer price

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Reference no: EM133090407

Question - There are two divisions at Quality Auto Inc., the tire division, and the assembly division. The tire division sells its tires to auto repair shops, as well as to the assembly division. The following information is available for the tires produced by the tire division:

Fixed costs per unit $40

Variable costs per unit 25

Selling price per unit 130

The assembly division can purchase comparable tires from an outside supplier for $120. The management of Quality Auto Inc. is wondering about various transfer pricing implications of internally selling an additional 20,000 tires per year to the assembly division. It could avoid $3 per unit of variable selling costs by selling internally. What is the maximum transfer price that the assembly division should accept?

Reference no: EM133090407

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