Refer to the information in Exercise 15-20. Assume there is no special order pending.

Required
a. What transfer price would you recommend for Tops Corporation?
b. Using your recommended transfer price, what will be the income of the two divisions, assuming monthly production and sales of 10,000 units?
c. The manager of the Manufacturing Division complains about the transfer price, saying that division profits are unfairly low. The two division managers meet and negotiate a transfer price of $295. What will be the income of the two divisions, assuming monthly production and sales of 10,000 units.
d. From a management control viewpoint, assess the value of the negotiated transfer price relative to your recommended price in requirement (a).

Exercise 15-20

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Manufacturing Marketing $5,000 Revenues $3,000 Variable costs 2,400 3,700 Contribution margin $ 600 $1,300 Fixed costs 500 800 Divisional profit $ 100 $ 500