29. Constellation Corporation manufactures parts in Division A that are transferred to Division B for use in its product, which requires one part per unit. Costs are as follows:

Division A has the capacity to produce 40,000 parts, which could sell on the market for $50 per part. Market demand is 30,000 parts. Division B has the capacity to produce 40,000 units, which could all sell on the market for $200 per unit. Division A operates in a jurisdiction with a 20% tax rate, and Division B operates in a jurisdiction with a 25% tax rate.
Calculate the transfer price if it is based on

a. Variable cost with a 20% markup

b. Full cost with a 20% markup

c. Market price

d. Which of the prices calculated above would the company as a whole most prefer?

e. What range would the transfer price fall into if it were negotiated between the two divisions?

Transcribed Image Text:

Division A Variable Fixed $30 per part $400,000 Division B $80 per unit + cost of parts $500,000