Answer:
The question is centred on transfer price at which the trailer division sells trailers to the bicycle division as contained in the attached
The transfer price is $102,when there is opportunity to sell externally without surplus capacity
However, in the second instance, transfer price would be between $44 and $102
Explanation:
The first question on transfer price requires a transfer that the trailer division should sell to the bicycle division provided all of the its output could be sold externally,that shows the reasonable price in that instance is the variable of the trailer's division plus the contribution lost per unit from not being able to sell to external parties
This is calculated as:
Variable cost $44
lost contribution($102-$44) $58
Transfer price $102
In the second instance the transfer price would be between the lowest possible transfer price and $102 computed above.
From,the question, there is extra capacity that can be used to fulfill the order of the bicycle, the lowest possible transfer price is variable cost to the trailer division
