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Unformatted text preview: 22-22(25 min.) General guideline, transfer price range.1.If the Screen Division sells screens in the outside market, it will receive, for each screen, the market price of the screen minus variable marketing and distribution costs per screen = $110 $4 = $106. The incremental cost of manufacturing each screen is $70. The Screen Division is operating at capacity. Hence, the opportunity cost per screen of selling the screen to the Assembly Division rather than in the outside market is the contribution margin the Screen Division would forgo if it transferred screens internally rather than sold them in the outside market.Contribution margin per screen = $106 $70 = $36.Using the general guideline,=That is, Minimum transfer price per screen = $70 + $36 = $1062.If the two division managers were to negotiate a transfer price, the range of possible transfer prices is between $106 and $112 per screen. As calculated in requirement 1, the Screen Division will be willing to supply screens to the Assembly...
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This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.
- Spring '10
- Financial Accounting