=+19-28 KK Pertinent transfer price OBJECTIVES 7, 8 Stradeka Ltd has two divisions, A and B, which manufacture quality pushchairs. Division A produces the pushchair frame and Division B assembles the rest of the pushchair onto the frame. There is a market for both the subassembly and the final product. Each division has been designated as a profit centre. The transfer price for the subassembly has been set at the long-run average market price.

The following data are available for each division:

Selling price for final product $300 Long-run average selling price for intermediate product 200 Incremental cost per unit for completion in Division B 150 Incremental cost per unit in Division A 120 The manager of Division B has made the following calculation:

Selling price for final product $300 Transferred-in cost per unit (market) $200 Incremental cost per unit for completion 150 350 Contribution (loss) on product $(50)

Required 1 Should transfers be made to Division B if there is no unused capacity in Division A? Is the market price the correct transfer price?

Show your calculations.