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Mt. Castle Corp operates a Manufacturing Division and a Marketing Division. Both divisions are profit centers. Marketing buys products from Manufacturing and packages them for
- Mt. Castle Corp operates a Manufacturing Division and a Marketing Division. Both divisions are profit centers. Marketing buys products from Manufacturing and packages them for sale. Manufacturing sells many components to third parties in addition to Marketing.
| Manufacturing | Marketing |
Capacity (units) | 1,060,000 | 506,000 |
Sale price-to 3rd Parties | $1,700 | $4,850 |
Variable costs | $620 | $1,800 |
Fixed costs | $10,600,000 | $7,260,000 |
(For Marketing, the variable cost does not include the transfer price paid to Manufacturing)
- If current production levels in Manufacturing are 606,000 units and Marketing requests and additional 106,000 units to produce a special order, What should be the appropriate transfer price?
- Suppose Manufacturing is operating at full capacity. What would be the most appropriate transfer price?
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