Transfer Pricing

The per unit cost details are as followers:

Machining Finishing
Transferred in cost N/A $27
Variable cost $24 9.00
Allocated fixed costs 3.00 13.50
Full cost per unit 27.00 49.50

An external supplier has offered to supply a product to the Finishing
division at $21 per unit. This would eliminate the need for the
Machining divisions output.

What is the minimum at which the Machining division should
transfer its output to the Finishing division?

What is the maximum price that the Finishing division will be willing to pay?

The Machining division is only prepared to transfer its
component at full cost. Assuming management wants the transfer of the Machining division to continue, how could dual transfer pricing be used?

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asked by Buddy

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