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Milwaukee Metallurgy Corporation (MMC)

Milwaukee Metallurgy Corporation (MMC) has two divisions. The Fabrication Division transfers partially completed components to the Assembly Division at a predetermined transfer price. /The Fabrication Division's standard variable production cost per unit is $450. The division has no excess capacity, and it could sell all of its components to outside buyers at $570 per unit in a perfectly competitive marker.

1. Determine a transfer price for MMC using the general rule.
2. How would the transfer price change if the Fabrication Division had excess capacity?

Solution Preview

The transfer pricing is not only an accounting tool, rather it is a behavioral tool that motivate managers to make the right decisions, In particular the transfer price should be designed so that it accomplishes the following subjects:
1. It should provide each segment with the relevant ...

Solution Summary

192 words with references to determine a transfer price and explain how excess capacity in fabrication of the product would change that.