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The Hayes Company is composed of a marketing division and a production division

The Hayes Company is composed of a marketing division and a production division. The production division produces a raw material that it transfers to the marketing division. There is an external market for this raw material, the price in this market (which is perfectly competitive) being $18 per pound. The production division’s average cost of production is $22 per pound. a) The vice-president of Production argues that the transfer price for this raw material should be $22. Otherwise his division cannot cover its costs. Is he correct? Why or why not? b) The VP of marketing argues that the transfer price should be $18. Otherwise his division is paying more than it needs to. Is he correct? Why or why not?

Feb 06 2020 View more View Less

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