The management of XYZ Corporation has decided to implement a transfer pricing system. XYZ’s MAINTENANCE department is currently negotiating a transfer price for its services with the four producing divisions of the company as well as the marketing department. Charges will be assessed based on the number of hours used for services. The cost to operate the MAINTENANCE department at its full capacity of 1,000 hours per year is budgeted at $45,000. The user subunits expect to request 200 hours each this year. The cost of temporary labor and additional facilities used to produce hours beyond capacity is budgeted at $48.00 per hour. XYZ could purchase the same services from an external maintenance services firm for $70,000. 

What amounts should be used as the ceiling and the floor in determining the negotiated transfer price (per unit)?

Answer rating: 100% (QA)

Full capacity of maintenance 1000 hours Total cost budgeted at this ... View the full answer