$15-36$ Evaluate Transfer Pricing System: Dual Rates

Anstell corporation operates a manafucturing division and a marketing division. Both divisions are evaluated a 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:

Manufacturing Marketing

Capacity $($units$)250,000125,000$

Sales price $$280$ $$910$

Variable costs $$112$ $$336$

Fixed costs $$100,000$ $$720,000$

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. Managements sets a transfer price for marketing to pay $($as a cost$)$ at $$112.$ From a management control viewpoint, assess the value of the dual rate system to your recommended system obtained in requirement $($b$).$