GriffinGriffin

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

$ 90$90.

The Tire Division has the following costs per tire:

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.

Direct material cost per tire $ 17$17
	Conversion costs per tire $ 1$1 (Assume the $ 1$1 includes only the variable portion of conversioncosts.)

Fixed manufacturing overhead cost for the year is expected to total

$ 112 comma 000$112,000.

The Tire Division expects to manufacture

56 comma 00056,000

tires this year. The fixed manufacturing overhead per tire is

$ 2$2

($ 112 comma 000$112,000

divided by

56 comma 00056,000

tires).

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 GriffinGriffin Motors has a negotiated transfer price policy, what is the lowest acceptable transferprice? What is the highest acceptable transfer price?
2.	If GriffinGriffin Motors has a cost-plus transfer price policy of full absorption cost plus 1010%, 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?

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 GriffinGriffin Motors has a negotiated transfer price policy, what is the lowest acceptable transferprice? What is the highest acceptable transfer price?
2.	If GriffinGriffin Motors has a cost-plus transfer price policy of full absorption cost plus 1010%, 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?

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

GriffinGriffin

Motors has a negotiated transfer price policy, what is the lowest acceptable transfer price? What is the highest acceptable transfer price? (Assume the

$ 1$1

includes only the variable portion of conversion costs.)

The lowest acceptable transfer price is $

, the Tire Division's

.

The highest acceptable transfer price is $

, the Tire Division's

.

Requirement 2. If

GriffinGriffin

Motors has a cost-plus transfer price policy of full absorption cost plus

1010%,

what would the transfer price be? (Assume the

$ 1$1

includes only the variable portion of conversion costs.)

Begin by selecting the formula to compute the transfer price under this strategy.

=

Cost-plus transfer price

If Griffin Motors has a cost-plus transfer price policy of full absorption cost plus 10%, 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?

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 $		.