Assume the Small Components Division of

Martin

Manufacturing produces a video card used in the assembly of a variety of electronic products.

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The division's manufacturing costs and variable selling expenses related to the video card are as follows:

	Cost per unit
Direct materials	$8.00
Direct labor	$3.00
Variable manufacturing overhead	$6.00
Fixed manufacturing overhead (at current production level)	$9.00
Variable selling expenses	$10.00

The Computer Division of

Martin

Manufacturing can use the video card produced by the Small Components Division and is interested in purchasing the video card in-house rather than buying it from an outside supplier. The Small Components Division has sufficient excess capacity with which to make the extra video cards. Because of competition, the market price for this video card is

$27

regardless of whether the video card is produced by

Martin

Manufacturing or another company.

Requirement 1. What is the highest acceptable transfer price for the divisions?

The highest acceptable transfer price for the divisions is the Small Components Division's
	,		.

Part 2

Requirement 2. Assuming the transfer price is negotiated between the divisions of the company, what would be the lowest acceptable transfer price? Assume variable selling expenses pertain to outside sales only.

The lowest acceptable transfer price for the divisions is the Small Components Division's
	,		.

Part 3

Requirement 3. Which transfer price would the manager of the Small Components Division prefer? Which transfer price would the manager of the Computer Division prefer?

The manager of the Small Components Division would prefer a transfer price of		.
The manager of the Computer Division would prefer a transfer price of		.

Part 4

Requirement 4. If the company's policy requires that all in-house transfers must be priced at full absorption cost plus

4%,

what transfer price would be used? Assume that the increased production level needed to fill the transfer would result in fixed manufacturing overhead decreasing by

$2.00

per unit. (Round your answer to the nearest cent.)

Begin by selecting the formula to compute the transfer price under this strategy. (Abbreviation used: MOH = Manufacturing overhead.)

=

Cost-plus transfer price

Part 5

The transfer price that would be used is

.

Part 6

Requirement 5. If the company's policy requires that all in-house transfers must be priced at total manufacturing variable cost plus

22%,

what transfer price would be used? Assume that the company does not consider fixed manufacturing overhead in setting its internal transfer price in this scenario. (Round your answer to the nearest cent.)

Begin by selecting the formula to compute the transfer price under this strategy. (Abbreviation used: MOH = Manufacturing overhead.)

=

Transfer price

Part 7

The transfer price that would be used is

.

Part 8

Requirement 6. Assume now that the company does incur the variable selling expenses on internal transfers. If the company policy is to set transfer prices at

101%

of the sum of the full absorption cost and the variable selling expenses, what transfer price would be set? Assume that the fixed manufacturing overhead would drop by

$2.00

per unit as a result of the increased production resulting from the internal transfers. (Round your answer to the nearest cent.)

Begin by selecting the formula to compute the transfer price under this strategy. (Abbreviation used: MOH = Manufacturing overhead.)

=

Transfer price

Part 9

The transfer price that would be used is

.