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 2.7 cm steel blade that can be used
by Tavaris Division in the production of scalpels. The market price
of the blade is $23. Cost information for the blade is:
Variable product cost
$ 9.40
Fixed cost
5.50
Total product cost
$14.90
Tavaris needs 20,000 units of the 2.7 cm blade per year. Alamosa
Division is at full capacity (82,000 units of the blade).
Required:
1. If Carreker, Inc., has a transfer pricing
policy that requires transfer at market price, what would the
transfer price be?
$ fill in the blank 1per unit
Do you suppose that Alamosa and Tavaris divisions would choose
to transfer at that price?
2. Now suppose that Carreker, Inc., allows
negotiated transfer pricing and that Alamosa Division can avoid
$1.50 of selling and distribution expense by selling to Tavaris
Division. Which division sets the minimum transfer price, and what
is it? Round your answers to the nearest cent, if needed.
$ fill in the blank 4per unit
Which division sets the maximum transfer price, and what is
it?
$ fill in the blank 6per unit
Do you suppose that Alamosa and Tavaris divisions would choose
to transfer somewhere in the bargaining range?
3. What if Alamosa
Division plans to produce and sell only 67,000 units of the 2.7 cm
blade next year? Which division sets the minimum transfer price,
and what is it? Round your answers to the nearest cent, if
needed.
$ fill in the blank 9per unit
Which division sets the maximum transfer price, and what is
it?
$ fill in the blank 11per unit
Do you suppose that Alamosa and Tavaris divisions would choose
to transfer somewhere in the bargaining range?
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