What should the transfer price be

Reference no: EM132378119

Problem - The Top Division of C. Can Company manufactures metal tops that are used by other divisions of C. Can Company and that also are sold to external customers. The Hardware Division of C. Can Company has requested the Top Division to supply a certain top, Style H, and the Top Division has computed a proposed transfer price per thousand tops, as follows:

Variable cost	$195
Fixed cost	21
Total cost	216
Profit (to provide normal return on assets employed)	40
Transfer price	$256

The Hardware Division is unwilling to accept this transfer price because Style H tops are regularly sold to outside customers for $239 per thousand. The Top Division points out, however, that competition for this top is unusually keen, and that this is why it cannot price the top to external customers so as to earn a normal return. Both divisions are profit centers.

Required: What should the transfer price be? (Explain your answer.)

Reference no: EM132378119

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