Yamaha Company has two divisions, Electronic Division and Instrument Division. For several years, Electronic Division has manufactured a special glass container, which it sells to Instrument Division at the prevailing market price of $20. Electronic Division produces the electrical component containers only for Instrument Division and does not sell the product to outside customers. Annual production and sales volume is 20,000 containers. A unit cost analysis for Electronic Division showed the following:

Cost CategoriesCosts per Container

Direct materials$3.50

Direct labor, 1 hours2.30

Variable overhead7.50

Avoidable fixed costs: $30,000 /20,0001.50

Corporate overhead: $18 per direct labor hour4.50

Variable shipping costs1.20

Unit cost $20.50

Corporate overhead represents the allocated joint fixed costs of production building depreciation, property taxes, insurance, and executives' salaries. A profit markup of 20 percent is used to determine transfer prices.

Required:

1.What would be the appropriate transfer price for Electronic Division to use in billing its transactions with Instrument Division (2 Marks)

2.If Electronic Division decided to sell some containers to outside customers, would your answer to requirement 3 change? Defend your response.(4 Marks)

3.What would be the transfer price EXCLUDING all fixed cost?(2 Marks)