The BIGMOTORCAR Co. has a number of divisions within its large organization. The VAN division has...

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The BIGMOTORCAR Co. has a number of divisions within its large organization. The VAN division has offered to purchase all of its wheels from the WHEELS division for $42 per wheel. Below is the current production cost information of the WHEELS division: Capacity in units Current production levels Cost data at Current Production Levels: Variable manufacturing costs per wheel Fixed manufacturing costs per wheel Total absorption cost per wheel 700,000 wheels 500,000 wheels $31 $18 $49 The WHEELS division has been selling 500,000 wheels per year to outside buyers at $58 each. The VAN division is currently buying 180,000 wheels from outside suppliers at $55 per wheel. Required: a. Determine the transfer pricing range and decide (make a choice) if the WHEELS division manager should accept the VAN division manager's offer, assuming that both divisions will make appropriate decentralized planning decisions. Explain your decision. b. In general, and considering the facts of the problem, what risks and other considerations does the WHEELS division manager have to consider if the deal is accepted. The BIGMOTORCAR Co. has a number of divisions within its large organization. The VAN division has offered to purchase all of its wheels from the WHEELS division for $42 per wheel. Below is the current production cost information of the WHEELS division: Capacity in units Current production levels Cost data at Current Production Levels: Variable manufacturing costs per wheel Fixed manufacturing costs per wheel Total absorption cost per wheel 700,000 wheels 500,000 wheels $31 $18 $49 The WHEELS division has been selling 500,000 wheels per year to outside buyers at $58 each. The VAN division is currently buying 180,000 wheels from outside suppliers at $55 per wheel. Required: a. Determine the transfer pricing range and decide (make a choice) if the WHEELS division manager should accept the VAN division manager's offer, assuming that both divisions will make appropriate decentralized planning decisions. Explain your decision. b. In general, and considering the facts of the problem, what risks and other considerations does the WHEELS division manager have to consider if the deal is accepted.

Answer rating: 100% (QA)

a Transfer Pricing Range and Decision The transfer pricing range is the range of prices within which the transfer of goods or services between divisions of the same company can occur It ensures that b... View the full answer