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 n rooms. Currently, it purchases a basic dresser from an outside supplier for $60. 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 dress $29. While the Furniture Division has been operating at capacity (50,000 dressers per year) and selling them for $60 each, it expects to produce and sell only 40,000 dressers for $60 each next year. The Furniture Division incurs variable costs of $1 per dresser. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. The company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? 40 Which division sets it? Motel Division 2. What is the minimum transfer price? $ 15 X Required: 1. What is the maximum transfer price? 40 Which division sets it? Motel Division 2. What is the minimum transfer price? $ 15 X Which division sets it? Furniture Division 3. Suppose that the two divisions agree on a transfer price of $32. What is the benefit for the Furniture Division? For the Motel Division? For Aulman Inc. as a whole? Benefit to Furniture Division $ 170,000 Benefit to Motel Division $ 280,000 Benefit to company $ 450,000 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 n rooms. Currently, it purchases a basic dresser from an outside supplier for $60. 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 dress $29. While the Furniture Division has been operating at capacity (50,000 dressers per year) and selling them for $60 each, it expects to produce and sell only 40,000 dressers for $60 each next year. The Furniture Division incurs variable costs of $1 per dresser. The Motel Division needs 10,000 dressers per year; the Furniture Division can make up to 50,000 dressers per year. The company policy is that all transfer prices are negotiated by the divisions involved. Required: 1. What is the maximum transfer price? 40 Which division sets it? Motel Division 2. What is the minimum transfer price? $ 15 X Required: 1. What is the maximum transfer price? 40 Which division sets it? Motel Division 2. What is the minimum transfer price? $ 15 X Which division sets it? Furniture Division 3. Suppose that the two divisions agree on a transfer price of $32. What is the benefit for the Furniture Division? For the Motel Division? For Aulman Inc. as a whole? Benefit to Furniture Division $ 170,000 Benefit to Motel Division $ 280,000 Benefit to company $ 450,000
