Question
Division C can purchase the component for $ 145 per unit in the open market. Division A insists that, because of the recent installation of
Division C can purchase the component for $ 145 per unit in the open market. Division A insists that, because of the recent installation of some highly specialized equipment and the resulting high depreciation charges, it will not be able to earn an adequate return on its investment unless it raises its price. Division As manager appeals to top management of Michael- Brown for support in the dispute with division C and supplies the following operating data: Cs annual purchases of the tractor- engine component 1,500 units As variable cost per unit of the tractor- engine component $ 115 As fixed cost per unit of the tractor- engine component $ 25 Hybrid Transfer Prices Question 3. Assume division C decides to purchase from division A and the internal transfer price is determined using: 1). Proration method 2). Negotiated pricing method 3). Dual pricing method What are the potential benefits and limitations of each of the above hybrid transfer pricing method?
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