Determining Market-Based and Negotiated Transfer Prices

Clanahan, Inc., has a number of divisions around the world. Division US (in the United States) purchases a component from Division N (in the Netherlands). The component can be purchased externally for $25.10 each. The freight and insurance on the item amount to $2.25; however, commissions of $2.10 need not be paid.

Required:

1. Calculate the transfer price using the comparable uncontrolled price method.

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2.Suppose that there is no outside market for the component that Division N transfers to Division US. Further assume that Division US sells the component for $27.30 and normally receives a 30 percent markup on cost of goods sold. Calculate the transfer price using the resale price method.

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per unit

3.Now assume that there is no external market for the component transferred from Division N to Division US, and that the component is used in the manufacture of another product (i.e., it is not resold). Calculate the transfer price using the cost-plus method. Further assume that Division N's manufacturing cost for the component is $18.30.

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4.What ifcommissions avoided were $2.45 per unit?

What would be the comparable uncontrolled price?

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per unit