The Leviathan Steel Company has a coal-mining subsidiary in West Virginia. A substantial amount of the coal produced by the subsidiary is used by Leviathan’s steel foundries located in Pennsylvania.
a. Recommend and defend a transfer price (market price, variable cost, or full cost plus profit) for the coal shipped by the mining subsidiary to the foundries.
b. Indicate how the price you recommended in part a compares with the opportunity cost related to using the coal internally.