Question

exercise 22-19 (algo) determining transfer prices lo c1the trailer division of baxter bicycles makes bike trailers that attach to bicycles and can carry children or cargo. the trailers have a market price of $95 each. each trailer incurs $39 of variable manufacturing costs. the trailer division has capacity for 29,000 trailers per year and has fixed costs of $470,000 per year.assume the assembly division of baxter bicycles wants to buy 4,500 trailers per year from the trailer division. if the trailer division can sell all of the trailers it manufactures to outside customers (and has no excess capacity), what price should be used on transfers between divisions?assume the trailer division currently only sells 10,900 trailers to outside customers and has excess capacity. the assembly division wants to buy 4,500 trailers per year from the trailer division. what is the range of acceptable prices on transfers between divisions?

Answer 1

The transfer price should be $95 if the trailer division has no excess capacity. If there is excess capacity, the range of acceptable transfer prices is between $39 and $95.

Step-by-step explanation:

To determine the transfer price, we need to consider the market price, variable manufacturing costs, and fixed costs. If the trailer division can sell all of its trailers to outside customers and has no excess capacity, the transfer price should be equal to the market price of $95. This ensures that the assembly division pays the same price as external customers.

If the trailer division has excess capacity and currently sells 10,900 trailers to outside customers, the range of acceptable prices on transfers between divisions would be between the variable manufacturing cost of $39 and the market price of $95. This range allows the trailer division to recover its variable manufacturing costs and also capture some additional profit margin.