Going Places, Inc., manufactures a variety of luggage for airline passengers. The company has several luggage production divisions, including the Suitable Cases Division, as well as a wholly owned subsidiary, It’s Mine, that manufactures small identification tags used on luggage. Each piece of luggage that Suitable Cases produces has two identification tags for which it previously paid the going market price of $2 each. Financial information for Suitable Cases and It’s Mine follows:

It’s Mine has a production capacity of 250,000 tags.

1. Determine how much Going Places will save on each tag if the Suitable Cases Division obtains them from It’s Mine instead of an external supplier.
2. Determine the maximum and minimum transfer prices for the tags. Who sets these?
3. Suppose Going Places has set a transfer price policy of variable cost plus 60 percent for all related-party transactions. Determine how much each party will benefit from the internal transfer.
4. Determine the mutually beneficial transferprice.

  • CreatedFebruary 27, 2015
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