Calculating Transfer Price

Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines.

Required:

If Burt has a transfer pricing policy that requires transfer at full cost:

What will the transfer price be$?$

$$

Do you suppose that Indian and Maple divisions will choose to transfer at that price?

Maple Division

Indian Division

If Burt has a transfer pricing policy that requires transfer at market price:

What would the transfer price be$?$

Do you suppose that Indian and Maple divisions would choose to transfer at that price?

Maple Division

Indian Division

Now suppose that Burt allows negotiated transfer pricing and that Indian Division can avoid $$120$ of selling expense by selling to Maple Division.

Which division sets the minimum transfer price?

What is the minimum transfer price?

$

Which division sets the maximum transfer price?

What is the maximum transfer price?

Do you suppose that Indian and Maple divisions would choose to transfer somewhere in the bargaining range?