10.12 Transfer Pricing, Idle Capacity er, Inc., has a number of divisions that produce liquors, bottled water, and glass- OBJECTIVE 56 Perri Glassware Division manufactures a variety of bottles that can be sold externally Thekand juice bottlers) or internally to Mouton & Perrier's Bottled Water Division. lnsand cost data on a case of 24 basic 12-ounce bottles are as follows Unit selling price Unit variable cost Unit product fixed cost* Practical capacity in cases $2.95 $1.25 $0.70 500,000 During the coming year, the Glassware Division expects to sell 390,000 cases of this bottle. nhe Bottled Water Division currently plans to buy 100,000 cases on the outside market for each. Ellyn Burridge, manager of the Glassware Division, approached Justin Thomas, anaser of the Bottled Water Division, and offered to sell the 100,000 cases for $2.89 each. lun explained to Justin that she can avoid selling costs of S0.12 per case by selling internally d that she would split the savings by offering a $0.06 discount on the usual price. What is the minimum transfer price that the Glassware Division would be willing to accept? What is the maximum transfer price that the Bottled Water Division would be willing to pay? Should an internal transfer take place? What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place? uppose Justin knows that the Glassware Division has idle capacity. Do you think that be would agree to the transfer price of $2.89? Suppose he counters with an offer to pay 2.-40. If you were Ellyn, would you be interested in this price? Explain with supporting omputations. upose that Mouton & Perrier's policy is that all internal transfers take place at full manu- t What uuld the transfer price be? Would the transfer take place