Reference no: EM132794216

The Airbag division incremental cost for manufacturing an airbag is $110 per unit. Freddie motors Inc. operates as a decentralized multidivisional company. The Igo division of Freddie motors Inc. purchases most of its airbags from the Airbag division.

• The Airbag division currently sells to its external customers 60,000 airbags and transfers to the Igo division 30, 000 airbags per year. The airbag division currently uses 75% of its available production capacity.
• The Airbag division current external selling price is $140 per airbag, the marketing selling costs are $12 per airbag.
• The Igo division has requested the Airbag division to transfer an additional 40,000 units for the next year.

Required:

Problem a. What is the minimum price that the airbag division would transfer the 40,000 additional airbags requested by the Igo Division? Provide explanations for your answer. Identify the qualitative factors that must be considered when establishing a transfer price policy?