Transfer Pricing

Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from an outside supplier for $40. The manager of the Furniture Division has approached the manager of the Motel Division about selling dressers to the Motel Division. The full product cost of a dresser is $29. The Furniture Division can sell all of the dressers it makes to outside companies for $40. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year.

Required:

1. Which division sets the maximum transfer price? Which division sets the minimum transfer price?

The maximum transfer price	SelectFurniture DivisionMotel DivisionItem 1
The minimum transfer price	SelectFurniture DivisionMotel DivisionItem 2

2. Suppose the company policy is that all transfers take place at full cost. What is the transfer price? $