Reference no: EM133118213

Question - Walking Motor Inc. is a decentralized, multi-division corporation. The assembly division purchases most of its steering wheels from the accessory division. The accessory division's incremental cost for a steering wheel is $40 per unit and is operating at 80% capacity. The current market price of the steering Wheels is $66.

Required -

1) What is the minimum price that the accessory division will sell a steering wheel to the assembly division?

2) If the company uses a variable cost transfer price policy, what would the transfer price be and explain one drawback of this method.

3) If the divisions want to negotiate a transfer price, what is the range of acceptable prices?

4) Ignoring the details above, the accessory division can make 5,000 units in a period and is currently selling 80% of that to outside customers at the market price. If the assembly division wants to start buying wheels from the accessory division, but they need 2,000 units, what will be the range of acceptable transfer prices in the negotiation?