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Chapter 11 Handout 3 Examples: Transfer Pricing The Problem: Division A of our company produces Ratchets and Division B produces Meads. B must have 1 Ratchet to produce 1 Mead. $12/unit $3/unit $28/unit $25,000/year $40,000/year 10,000 units (Ratchets) Division A Variable Production Cost Variable Selling Cost External Selling Price Fixed Selling Expenses Fixed Overhead Production Capacity Variable Production Cost Variable Selling Cost External Purchase Price External Selling Price Production Capacity $60/unit-without ratchet cost $10/unit S26.50 per Ratchet $100 per Mead 3,000 units (Meads) Division B A. Division A transfers 1 ratchet to Division B for $16/unit. What is the Contribution Margin for these transactions (Division A, Division B, Our Company)? B. Now assume that "A" can sell 5,000 ratchets to outside customers. 1) What is A's minimum acceptable transfer price per unit? 2) What is B's maximum acceptable transfer price per unit? 3) What is the range of the transfer price? 4) Is our company better off or worse off? By how much? 5) Suppose the transfer price is $22. How much better off or worse off are A, B and the company? 00 here to search