1. Explain why transfer prices based on total actual costs are not appropriate as the basis for divisional performance measurement.
2. Using the market price as the transfer price, determine the contribution margins for both the Mining division and the Metals division.
3. If Redstone Industrial Resources Company were to institute the use of negotiated transfer prices and allow division to buy and sell on the open market, determine the price range for toldine that would be acceptable to both the Mining Division and the Metals Division.
4. Use the general transfer pricing rule to compute the lowest transfer price that would be acceptable to the Mining Division. Is your answer consistent with your conclusion in #3?
5. Identify which one of the three types of transfer prices (cost-based, market-based, or negotiated) in most likely to elicit desirable management behavior at RIRC.
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An Excel and Word document to show how to figure out questions covering transfer prices