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What would the transfer price be

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Question - Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments.

Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $22.00. Cost information for the blade is:

Variable product cost $10.00

Fixed cost 6.20

Total product cost $16.20

Tavaris needs 15,000 units of the 2.6 cm blade per year. Alamosa Division is at full capacity (90,000 units of the blade).

Required -

1. If Carreker, Inc., has a transfer pricing policy that requires transfer at full product cost, what would the transfer price be?

2. If Carreker, Inc., has a transfer pricing policy that requires transfer at full cost plus 25 percent, what would the transfer price be?

3. If Carreker, Inc., has a transfer pricing policy that requires transfer at variable product cost plus a fixed fee of $3.00 per unit, what would the transfer price be?

4. What if Alamosa Division plans to produce and sell only 65,000 units of the 2.6 cm blade next year? The Carreker, Inc., policy is that all transfers be at full cost. Which division sets the minimum transfer price, and what is it?

5. Which division sets the maximum transfer price, and what is it?

Reference no: EM132920063

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