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Exercise 1 1 - 1 3 ( Algo ) Transfer Pricing Situations [ L 0 1 1 - 3 ] [ The following information applies
Exercise Algo Transfer Pricing Situations L
The following information applies to the questions displayed below.
In each of the cases below, assume Division has a product that can be sold either to outside customers or to Division
of the same company for use in its production process. The managers of the divisions are evaluated based on their
divisional profits.
Exercise Algo Part
Required:
Refer to the data in case A above. Assume in this case that $ per unit in variable selling costs can be avoided on intracompany
sales.
a What is the lowest acceptable transfer price from the perspective of the selling division?
b What is the highest acceptable transfer price from the perspective of the buying division?
c What is the range of acceptable transfer prices if any between the two divisions? If the managers are free to negotiate and make
decisions on their own, will a transfer probably take place?
Complete this question by entering your answers in the tabs below.
What is the range of acceptable transfer prices if any between the two divisions? If the managers are free to negotiate and
make decisions on their own, will a transfer probably take place?
Identify the range of acceptable transfer prices if any:
There is not a range of acceptable transfer prices.
There is a range of acceptable transfer prices as shown below:
Are the managers likely to agree on a transfer price?
Yes
INo
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