Home / Questions / Calculating Transfer Price Burt Inc has a number of divisions, including the Indian Divisi...
Calculating Transfer Price Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines. Indian Division produces the h20-model pump that can be used by Maple Division in the production of motors that regulate the raising and lowering of the boat engine’s stern drive unit. The market price of the h20-model is $720, and the full cost of the h20-model is $540.
Required:
1. If Burt has a transfer pricing policy that requires transfer at full cost, what will the transfer price be? Do you suppose that Indian and Maple divisions will choose to transfer at that price?
2. If Burt has a transfer pricing policy that requires transfer at market price, what would the transfer price be? Do you suppose that Indian and Maple divisions would choose to transfer at that price?
3. Now suppose that Burt allows negotiated transfer pricing and that Indian Division can avoid $120 of selling expense by selling to Maple Division. Which division sets the minimum transfer price, and what is it? Which division sets the maximum transfer price, and what is it? Do you suppose that Indian and Maple divisions would choose to transfer somewhere in the bargaining range?
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