Gibson Motors manufactures specialty tractors. It has two divisions: a Tractor Division and a Tire Division. The
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1. Assume that the Tire Division has excess capacity, meaning that it can produce tires for the Tractor Division without giving up any of its current tire sales to outsiders. If Gibson Motors has a negotiated transfer price policy, what is the lowest acceptable transfer price? What is the highest acceptable transfer price?
2. If Gibson Motors has a cost- plus transfer price policy of full absorption cost plus 10%, what would the transfer price be?
3. If the Tire Division is currently producing at capacity (meaning that it is selling every single tire it has the capacity to produce), what would likely be the most fair transfer price strategy to use? What would be the transfer price in this case?
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