Refer to Cornerstone Exercise 10-4.

Required:

1. If Eastmed, Inc., has a transfer pricing policy that requires transfer at full product cost, what would the transfer price be? Do you suppose that Aberdeen and Fairfield divisions would choose to transfer at that price?

2. If Eastmed, Inc., has a transfer pricing policy that requires transfer at full cost plus 25 percent, what would the transfer price be? Do you suppose that Aberdeen and Fairfield divisions would choose to transfer at that price?

3. IfEastmed, Inc., has a transfer pricing policy that requires transfer at variable product cost plus a fixed fee of $2.00 per unit, what would the transfer price be? Do you suppose that Aberdeen and Fairfield divisions would choose to transfer at that price?

4. What if Aberdeen Division plans to produce and sell only 65,000 units of the 2.6 cm blade next year? The Eastmed, Inc., policy is that all transfers be at full cost.

Which division sets the minimum transfer price, and what is it? Which division sets the maximum transfer price, and what is it? Do you suppose that Aberdeen and Fairfield divisions would choose to transfer?

LO1