Garcia Motors manufactures specialty tractors. It has two divisions: a Tractor Division and a Tire Division. The Tractor Division can use the tires produced by the Tire Division. The market price per tire is $65. The Tire Division has the following costs per tire: (Click the icon to view the costs and additional information.) Read the requirements Requirement 1. Assume that the Tire Division has excess capacity, meaning that it can produce tires for the Tractor Division without giving up any of its current tire sales to outsiders. If Garcia Motors has a negotiated transfer price policy, what is the lowest acceptable transfer price? What is the highest acceptable transfer price? (Assume the $3 includes only the variable portion of conversion costs.) Direct material cost per tire/Market price per tire/Total cost per tire/Variable cost per tire The lowest acceptable transfer price is $ the Tire Division's Direct material cost per tire/Market price per tire/Total cost per tire/Variable cost per tire The highest acceptable transfer price is $ the Tire Division's Requirement 2. If Garcia Motors has a cost-plus transfer price policy of full absorption cost plus 20%, what would the transfer price be? (Assume the $3 includes only the variable portion of conversion costs.) Begin by selecting the formula to compute the transfer price under this strategy. Market price x 1.2/Variable cost/Variable cost x 1.20/Variable cost + Fixed manufacturing overhead cost/(Variable cost + Fixed manufacturing overhead cost) x 1.20 Cost-plus transfer price If Garcia Motors has a cost-plus transfer price policy of full absorption cost plus 20%, the transfer price would be $ Requirement 3. If the Tire Division is currently producing at capacity (meaning that it is selling every single tire it has the capacity to produce), what would likely be the fairest transfer price strategy to use? What would be the transfer price in this case? Cost/Market price/Negotiated price When a company is producing and selling at its capacity, the fairest transfer price strategy to use is the strategy. In this case, the transfer price would be $ More Info Direct material cost per tire $25 Conversion costs per tire $3 (Assume the $3 includes only the variable portion of conversion costs.) Fixed manufacturing overhead cost for the year is expected to total $110,000. The Tire Division expects to manufacture 55,000 tires this year. The fixed manufacturing overhead per tire is $2 ($110,000 divided by 55,000 tires). Print Done i Requirements X 1. Assume that the Tire Division has excess capacity, meaning that it can produce tires for the Tractor Division without giving up any of its current tire sales to outsiders. If Garcia Motors has a negotiated transfer price policy, what is the lowest acceptable transfer price? What is the highest acceptable transfer price? 2. If Garcia Motors has a cost-plus transfer price policy of full absorption cost plus 20%, what would the transfer price be? 3. If the Tire Division is currently producing at capacity (meaning that it is selling every single tire it has the capacity to produce), what would likely be the fairest transfer price strategy to use? What would be the transfer price in this case? Print Done