what mark up over full cost is implied by this transfer price?

decentralizati od or had Problem 12-40 Full Cost-Plus Pricing and Negotiation Iechno via Inc, has two divisions: Auxiliary Components and Audio agers are encouraged to maximize ROI and EVA. Managers are essentially free to determine whether goods will be transferred internally and what will be the internal tra quarters has directed that all internal prices be expressed on a full cost-plus n the full cost pricing arrangement, however, is left to the discretion of the divisional m Recently, the t basis. The markup two divisional managers met to discuss a pricing agreement for a subwoofer that with a personal computer system. Production of the subwoofers is at capacity ers can be sold for $31 to outside customers. The Audio Systems Division can also buy fer from external sources for the same price; however, the manager of this division is Subwoof the subwoo hoping to obtain a price concession by buying internally. The full cost of manufacturin woofer is $20. If the manager of the Auxiliary Components Division sells the subwoofer inter nally, S5 of selling and distribution costs can be avoided. The volume of business would be 250,000 units per year, which is well within the capacity of the producing division. After some discussion, the two managers agreed on a full cost-plus pricing scheme that would be reviewed annually. Any increase in the outside selling price would be added to the transfer price by simply increasing the markup by an appropriate amount. Any major change n the factors that led to the agreement could initiate a new round of negotiation. Otherwise, the full cost-plus arrangement would continue in force for subsequent years Required Calculate the minimum and maximum transfer prices. Assume that the transfer price agreed on between the two managers is halfway between th minimum and maximum transfer prices. Calculate this transfer price. What markup o full cost is implied by this transfer price? 3. Refer to Requirement 2. Assume that in the following year, the outside price of subwoofer increases to $32. What is the new full cost-plus transfer price? CONCEPTUAL CONNECTION Assume that 2 years after the initial agreement, then for subwoofers has softened considerably, causing excess capacity for the Auxiliary Comp nents Division. Would you expect a renegotiation of the full cost-plus pricing arrangemer for the coming year? Explain. 4