Use Transfer Pricing to Negotiate the Exchange Between Two Internal Departments

Interin Machines is a highly decentralized conglomerate manufacturer that has strength in adapting to new markets. Currently, the Steel Fabrications department needs a part from the Aluminum Fabrications department for a new product it is introducing next quarter. For pricing this new product, Steel Fabrications plans to simply add the market price of the aluminum casing to the final product. Below is more information regarding this part.

Aluminum Casing

Market Price $ $45\mathrm{.}00$

Variable Cost $ $24\mathrm{.}00$

Fixed Cost $($per unit$)$ $ $8\mathrm{.}00$

Full Cost $ $32\mathrm{.}00$

Capacity $5,000$

Capacity Used $3,000$

Transfer Amount Demanded $1,000$

Required:

Answer the questions below regarding the transfer of this part.

What is the maximum transfer price for this part?

What is the minimum transfer price for this part?

What is the mutually beneficial price for this part?

If the aluminum fabricators accept the Variable Cost for this part, show the profitability of each department.

If the aluminum fabricators accept the Market Price for this part, show the profitability of each department.

If the aluminum fabricators accept the mutually beneficial price for this part, show the profitability of each department.