Determining Market-Based and Negotiated Transfer Prices

Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments.

Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $21. Cost information for the blade is:

Variable product cost$ 9.50 Fixed cost 5.20Total product cost$14.70

Tavaris needs 19,000 units of the 2.6 cm blade per year. Alamosa Division is at full capacity (80,000 units of the blade).

Required:

1.If Carreker, Inc., has a transfer pricing policy that requires transfer at market price, what would the transfer price be?

$ per unit

Now suppose that Carreker, Inc., allows negotiated transfer pricing and that Alamosa Division can avoid $1.65 of selling and distribution expense by selling to Tavaris Division. Which division sets the minimum transfer price, and what is it? Round your answers to the nearest cent, if needed.

Alamosa$ per unit

per unit

Which division sets the maximum transfer price, and what is it?

Tavaris

$ per unit

SHOW WORK.