This question has been answered
Question

Perfumes Ltd has two divisions: the Perfume Division and the Bottle

Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Perfume Division. The Bottle Division's variable manufacturing cost per unit is $3.00 and shipping costs are $0.20 per unit. The Bottle Division's external sales price is $4.00 per unit. No shipping costs are incurred on sales to the Perfume Division. The Perfume Division can purchase similar bottles in the external market for $3.50. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Perfume Division. Required:
a) Using the general rule, determine the minimum transfer price.
b) Assume the Bottle Division has no excess capacity and can sell everything produced externally. Would the transfer price change?
c) Assume the Bottle Division has no excess capacity and can sell everything produced externally. What is the maximum amount Perfume Division would be willing to pay for the bottles?
d) When is it more appropriate to use market-based transfer price rather than cost-based transfer price?

Answered by Expert Tutors
Step-by-step explanation
The student who asked this found it Helpful
Overall rating 100%
Subject: Accounting, Business
Perfumes Ltd has two divisions: the Perfume Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit...
Get unstuck

311,847 students got unstuck by Course
Hero in the last week

step by step solutions

Our Expert Tutors provide step by step solutions to help you excel in your courses