Question

Determining Market-Based and Negotiated Transfer Prices
Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments.
Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $22.00. Cost information for the blade is:
Variable product cost $ 9.60
Fixed cost 6.00
Total product cost $15.60
Tavaris needs 15,000 units of the 2.6 cm blade per year. Alamosa Division is at full capacity (90,000 units of the blade).
Required:
Round your answers to the nearest cent.
If Carreker, Inc., has a transfer pricing policy that requires transfer at full product cost, what would the transfer price be?
$ per unit
Do you suppose that Alamosa and Tavaris divisions would choose to transfer at that price?
Alamosa
Tavaris

Answer 1

Answer:

Carreker, Inc.

The transfer price per unit is $15.60.

Travaris would choose to transfer at this full cost price of $15.60 per unit, while Alamosa would choose to transfer at the market price of $22.00 per unit.

Explanation:

a) Data and Calculations:

Divisions: Alamosa and Tavaris

Market price of blade per unit = $22

Production costs:

Variable product cost $ 9.60

Fixed cost                       6.00

Total product cost      $15.60

Units of the blade required by Tavaris = 15,000

Full product cost, transfer price = $15.60 per unit

Total transfer price = $234,000 (15,000 * $15.60)

Choice price per unit:

Alamosa = $22.00

Tavaris = $15.60