PA10-4 (Static) Identifying Minimum, Maximum, Mutually Beneficial Transfer Prices [LO 10-6]

Grover Corp. is a manufacturing company that produces golf clubs. Birdie is a division of Grover that manufactures putters. Birdies putters are used in Grovers golf club sets and are sold to other golf wholesalers. Cost information per putter follows:

Variable cost	$25.00
Full cost	28.00
Market price	42.00

In addition, its capacity data follow:

Capacity per year	40,000 putters
Current production level	30,000 putters

Required: 1. Assuming Grover produces 3,000 putters per year, determine the overall benefit of using putters from Birdie instead of purchasing them externally. 2. Determine the maximum price that the production facility would be willing to pay to purchase the putters from Birdie. 3. Determine the minimum that Birdie will accept as a transfer price. 4. Determine the mutually beneficial transfer price for the putters. (Round your answer to 2 decimal places.) 5. If Birdie were operating at capacity, what is the minimum price it would accept?

1 Total savings with Birdie putters 2. Maximum price Grover would pay Birdie 3. Minimum price Birdie will accept 4. Mutually beneficial price 5. Minimum price Birdie would accept at capacity