Future Industries operates as a decentralized, vertically integrated, multidivisional company. One of its divisions, the systems division,
Question:
The board division sells its commercial product at total cost plus a 25% markup and believes that the proprietary board it makes for the systems division would sell for $36.75 per unit on the open market. The market price of the transistor used by the systems division is $7.40 per unit.
Instructions
(a) Using the general approach to transfer pricing, determine the minimum transfer price at which the transistor division would sell the transistor to the systems division.
(b) Determine the maximum transfer price at which the systems division would buy the transistor from the internal division.
(c) Assume the systems division is able to purchase a large quantity of transistors from an outside source at $5.80 per unit and that the transistor division has excess capacity. Evaluate this price using the criteria of goal congruence and division performance.
(d) The board and systems divisions have negotiated a transfer price of $33 per printed circuit board. Evaluate this negotiated transfer price in terms of goal congruence, division performance, and division autonomy.
Step by Step Answer:
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly