Carol Components operates a Production Division and a Packaging Division Both divisions are evaluated as profit centers Packaging buys components from Production and assembles them for sale Production sells many components to third parties in addition to Packaging Selected data from the two operations follow Production Packaging Capacity (units) 50,000 25,000 Sales price a $ 240 $ 780 Variable costs b $ 96 $ 288 Fixed costs $ 3,000,000 $ 1,800,000 a For Production, this is the price to third parties b For Packaging, this does not include the transfer price paid to Production Required Current output in Production is 25,000 units Packaging requests an additional 5,000 units to produce a special order What transfer price would you recommend Suppose Production is operating at full capacity What transfer price would you recommend Suppose Production is operating at 47,500 units What transfer price would you recommend

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Question: Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them

Carol Components operates a Production Division and a Packaging Division. Both divisions are evaluated as profit centers. Packaging buys components from Production and assembles them for sale. Production sells many components to third parties in addition to Packaging. Selected data from the two operations follow:

	Production	Packaging
Capacity (units)	50,000	25,000
Sales price^a	$ 240	$ 780
Variable costs^b	$ 96	$ 288
Fixed costs	$ 3,000,000	$ 1,800,000

^a For Production, this is the price to third parties.

^b For Packaging, this does not include the transfer price paid to Production.

Required:

Current output in Production is 25,000 units. Packaging requests an additional 5,000 units to produce a special order. What transfer price would you recommend?

Suppose Production is operating at full capacity. What transfer price would you recommend?

Suppose Production is operating at 47,500 units. What transfer price would you recommend?

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