The following information is available for the two divisions of MAC Company: Division A: Selling price...

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The following information is available for the two divisions of MAC Company: Division A: Selling price to outside market $ 55 Standard unit-level costs 35 Division B: Selling price of finished product $ 95 Standard unit-level costs 25 Division A routinely sells its product internally to Division B and Division A has no excess production capacity. Required: a) In order to ensure the best use of the productive capacity of Division A, what transfer price should be set by Division A and what effect does this transfer price have on the overall margin for the company? Is the answer goal congruent under the general rule? b) Should Division B accept a special order for its product if the selling price is reduced to $70. Use your answer from (a) and explain. c) Would your answer to (b) change if Division A had excess capacity? Explain. The following information is available for the two divisions of MAC Company: Division A: Selling price to outside market $ 55 Standard unit-level costs 35 Division B: Selling price of finished product $ 95 Standard unit-level costs 25 Division A routinely sells its product internally to Division B and Division A has no excess production capacity. Required: a) In order to ensure the best use of the productive capacity of Division A, what transfer price should be set by Division A and what effect does this transfer price have on the overall margin for the company? Is the answer goal congruent under the general rule? b) Should Division B accept a special order for its product if the selling price is reduced to $70. Use your answer from (a) and explain. c) Would your answer to (b) change if Division A had excess capacity? Explain.

Answer rating: 100% (QA)

Answer a To determine the transfer price that ensures the best use of Division As productive capacity we need to consider the standard unitlevel costs ... View the full answer