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.

Indian Division produces the h$20-$model pump that can be used by Maple Division in the production of motors that regulate the raising and lowering of the boat engine's stern drive unit. The market price of the h$20-$model is $$720,$ and the full cost of the h$20-$model is $$540.$

Required:

$1.$ If Burt has a transfer pricing policy that requires transfer at full cost, what will the transfer price be$?$

$fill in the blank $1$

$540$

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

Maple Division

chooses to transfer

Indian Division

refuses to transfer

$2.$ If Burt has a transfer pricing policy that requires transfer at market price, what would the transfer price be$?$

$fill in the blank $4$

$720$

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

Maple Division

chooses to transfer

Indian Division

chooses to transfer

$3.$ 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?

Maple Division

What is the minimum transfer price?

$fill in the blank $8$

$420$

Which division sets the maximum transfer price?

Indian Division

What is the maximum transfer price?

$fill in the blank $10$

$600$

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

Yes