Exercise 10.12 Transfer Pricing, Idle Capacity Mouton & Perrier, Inc., has a number of divisions that produce liquors, bottled water, and glassware. The Glassware Division manufactures a variety of bottles that can be sold externally (to soft-drink and juice bottlers) or internally to Mouton & Perriers Bottled Water Division. Sales and cost data on a case of 24 basic 12-ounce bottles are as follows: During the coming year, the Glassware Division expects to sell 390,000 cases of this bottle. The Bottled Water Division currently plans to buy 100,000 cases on the outside market for $2.95 each. Ellyn Burridge, manager of the Glassware Division, approached Justin Thomas, manager of the Bottled Water Division, and offered to sell the 100,000 cases for $2.89 each. Ellyn explained to Justin that she can avoid selling costs of $0.12 per case by selling internally and that she would split the savings by offering a $0.06 discount on the usual price. Required: 1. What is the minimum transfer price that the Glassware Division would be willing to accept? Round to the nearest cent. $ per unit What is the maximum transfer price that the Bottled Water Division would be willing to pay? Round to the nearest cent. $ per unit Should an internal transfer take place? What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place? $ 2. Suppose Justin knows that the Glassware Division has idle capacity. Do you think that he would agree to the transfer price of $2.89? Suppose he counters with an offer to pay $2.40. If you were Ellyn, would you be interested in this price? 3. Suppose that Mouton & Perriers policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be? Round to the nearest cent. $ per unit Would the transfer take place?