Question
Division A of Spangler Company expects the following results: To Division B To Outsiders Sales (5,000 $ 60) $ 300,000 (25,000 $ 60) $ 1,500,000
Division A of Spangler Company expects the following results: To Division B To Outsiders Sales (5,000 $ 60) $ 300,000 (25,000 $ 60) $ 1,500,000 Variable costs at $ 36 180,000 900,000 Contribution margin $ 120,000 $ 600,000 Fixed costs, all common, allocated on the basis of relative units 60,000 300,000 Profit $ 60,000 $ 300,000 Division B has the opportunity to buy the 5,000 units it needs from an outside supplier at $45 each. Assume that Division A cannot increase sales to outsiders.
Required:
A. What would be the optimal transfer price?
B. Assume that Spangler allows the divisional managers to negotiate transfer prices what would the maximum transfer price be?
C Assume that Spangler allows the divisional managers to negotiate transfer prices, what would the minimum transfer price be?
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