Transfer Pricing, Idle Capacity

Asgard Farms, Inc., has a number of divisions that produce jams and jellies, condiments and glassware. The Glassware Division

manufactures a variety of bottles that can be sold externally $($to soft$-$drink and juice bottlers$)$ or internally to Asgard Farm's Jams Division.

Sales and cost data on a case of $24$ basic $12-$ounce bottles are as follows:

Unit selling price $$2\mathrm{.}95$

Unit variable cost $$1\mathrm{.}15$

Unit product fixed cost$*$ $$0\mathrm{.}70$

Practical capacity in cases $570,000$

$*$$$399,\frac{000}{570},000$

During the coming year, the Glassware Division expects to sell $450,000$ cases of this bottle. The Jams and Jellies Division currently plans to

buy $105,950$ cases on the outside market for $$2\mathrm{.}95$ each. Bella Howard, manager of the Glassware Division, approached Paul Vining,

manager of the Jams and Jellies Division, and offered to sell the $105,950$ cases for $$2\mathrm{.}90$ each. Bella explained to Paul that she can avoid

selling costs of $$0\mathrm{.}13$ per case by selling internally and that she would split the savings by offering a $$0\mathrm{.}05$ discount on the usual price.

Required:

What is the minimum transfer price that the Glassware Division would be willing to accept? Round to the nearest cent.

$

X per unit

What is the maximum transfer price that the Jams and Jellies Division would be willing to pay? Round to the nearest cent.

$

$x$ per unit

Should an internal transfer take place?

What would be the benefit $($or loss$)$ to the firm as a whole if the internal transfer takes place? When required, round your answer to the

nearest dollar.

$$$$x$

Suppose Paul knows that the Glassware Division has idle capacity. Do you think that he would agree to the transfer price of $$2\mathrm{.}90?$

$$

Suppose he counters with an offer to pay $$2\mathrm{.}44.$ If you were Bella, would you be interested in this price?

$$

Suppose that Asgard Farm's policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be$?$

Round to the nearest cent.

$

$x$ per unit

Would the transfer take place?