Transfer Pricing (Problem 13.48) - READ AGAIN

Transfer Pricing (Problem 13.48) - READ AGAIN - Problem...

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Unformatted text preview: Problem 13.48 Part 1) There is no excess capacity for neither the Mining division nor the metal division so, transfer price based on actual cost is not appropraite. Part 2) Mining Division Metal Division Transfer Price $90 Direct Material $12 $6 Direct Labor $16 $20 Variable Mfg. Overhead $24 $10 $52 $126 Contribution margin $38 $24 Part 3) Since the Mining division will incur a variable cost of $5 / unit in selling directly to the open market so, it can give the Metal Division at a transfer price which is adjusted by $5 Mining Division Metal Division Transfer Price $85 Direct Material $12 $6 Direct Labor $16 $20 Variable Mfg. Overhead $24 $10 $52 $121 Contribution margin $33 $29 Therefore the price range for toldine which would be acceptable for both divisions is $85 - $90 Part 4) According to the general trasfer pricing rule the lowest transfer price acceptable to the Mining division is $85. Since in this case it is able to make the same amount of profit as it would make by selling the toldine in open market. The contribution margin calculation will be the same as part 2) Part 5) Cost based Transfer Pricing Mining Division Metal Division Transfer Price $66 Direct Material $12...
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Transfer Pricing (Problem 13.48) - READ AGAIN - Problem...

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