Anstell Corporation operates a Manufacturing Division and a Marketing Division. Both divisions are evaluated as profit centers. Marketing buys products from Manufacturing and packages them for sale. Manufacturing sells many components to third parties in addition to Marketing. Selected data from the two operations follow:

* For Manufacturing, this is the price to third parties.

† For Marketing this does not include the transfer price paid to Manufacturing. 

Required

a. Current output in Manufacturing is 150,000 units. Marketing requests an additional 25,000 units to produce a special order. What transfer price would you recommend? Why?

b. Suppose Manufacturing is operating at full capacity. What transfer price would you recommend? Why?

c. Suppose Anstell management decides that a dual-rate system will lead the two divisions to cooperate. Manufacturing continues to operate at full capacity. Management sets a transfer price for Manufacturing to receive (as revenue) at $280 and a transfer price for Marketing to pay (as a cost) at $112. From a management control viewpoint, assess the value of the dualrate system to your recommended system obtained in requirement (b).

Transcribed Image Text:

Capacity (units). Sales price*... Variable costs'.. Fixed costs.... ***... Manufacturing 250,000 $ 280 $ 112 $100,000 Marketing 125,000 910 336 $720,000 $ $