Transfer pricing
Not what you're looking for?
1. Maxum Ltd has capacity to produce 75,000 units of their product, which is currently produced in Division D. They currently produce and sell 61,000 units annually. Maxum only produces to order, so there are no inventories to report or account for. Each unit can be sold externally for $215 per unit, or may be transferred to another division where it would be used in the production of another product. That division (Division R) can purchase this unit from an external supplier for $195 per unit.
Additional information:
Division D Division R
Selling Price $215 $500
Variable costs 125 250
Fixed costs 65 130
Note: The variable costs for Division R do not include the cost of the product from Division D
Assuming that Division R currently purchases this unit from an external supplier, and that they require 15,000 units of the product to meet their demand what is the minimum price that could be charged to Division R?
a. $125
b. $127
c. $131
d. $195
e. $215
Purchase this Solution
Solution Summary
The solution explains how to determine the minimum transfer price
Solution Preview
Total requirement is 15,000 units. Division D has unused capacity of 75,000-61,000=14,000. The transfer price should be
1. For usused capacity of ...
Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Basics of corporate finance
These questions will test you on your knowledge of finance.
Academic Reading and Writing: Critical Thinking
Importance of Critical Thinking
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.