Solved by Expert Tutors
Solved by Expert Tutors
Question

Spark Ltd has two divisions, assembly and electrical. The assembly

division transfers partially completed components to the electrical division at a predetermined transfer price. The assembly division's standard variable production cost per unit is $550. This division has spare capacity, and it could sell all its components to outside buyers at $680 per unit in a perfectly competitive market.


a) Determine a transfer price using the general rule.
b) How would the transfer price change if the assembly division had no spare capacity?
c) What transfer price would you recommend if there was no outside market for the transferred component and the assembly division had spare capacity?
d) Explain how negotiation between the supplying and buying units may be used to set transfer prices. How does this relate to the general transfer pricing rule?

Step-by-step answer

fficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Facinia pulvi

et, consectetur adipiscing elit. Nam lacinia pulvinar

o. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor n

acinia pulvinar tortor nec facilisis. Pelipsum dolor si


iscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus

s a molestie consequat, ultrices ac magna. Fusce dui lectus, co

m ipsum dolor sit amet, consecterem ipsum dolo


a. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam

s a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae

ce dui lectus, congue vel laoreet ac, dictum


itur laoreet. Nam

congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur

Subscribe to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question