What should be the transfer price

Reference no: EM132784785

Nogo Motors, Inc., has several divisions that often purchase component parts from each other. The company is fully decentralized and each divisions on where to buy and sell in conformity with divisional goals. Igo Division purchases most of its airbags from Letgo Division. The managers of these two divisions are currently negotiation a transfer price for the airbags for next year, when the airbag will be standard equipment on all Igo vehicles.

Letgo Division prepared the following financial information for negotiating purposes:

Problem 1: If Letgo Division desires to achieve it's operating income goal of 20% of sales. What should be the transfer price?

Problem 2: Assume that Letgo Division wants to maximize its operating income. What transfer price would you recommend that the Letgo Division negotiated?

Problem 3: What is the transfer price that you believe Letgo Division should charge if overall company-operating income is to be maximized?

Reference no: EM132784785

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