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Required information

Exercise $11-13($Static$)$ Transfer Pricing Situations $[$L$011-3]$

$[$The following information applies to the questions displayed below.$]$

In each of the cases below, assume Division $x$ has a product that can be sold to outside customers or to Division $Y$ of the

same company. The managers of the divisions are evaluated based on their divisional profits.

Exercise $11-13($Static$)$ Part $1$

Required:

Refer to the data in case A above. Assume in this case $$3$ 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?