Question

qs 22-18 (algo) determining transfer prices without excess capacity lo c1 the windshield division of jaguar company makes windshields for use in its assembly division. the windshield division incurs variable costs of $284 per windshield and has capacity to make 640,000 windshields per year. the market price is $560 per windshield. the windshield division incurs total fixed costs of $3,100,000 per year. if the windshield division is operating at full capacity, what transfer price should be used on transfers between the windshield and assembly divisions?

Answer 1

The transfer price between the windshield and assembly divisions should be $560 per windshield.

Step-by-step explanation:

To determine the transfer price between the windshield and assembly divisions, we need to consider the variable costs, market price, and fixed costs of the windshield division. In this case, the windshield division incurs variable costs of $284 per windshield and has a capacity to make 640,000 windshields per year. The market price is $560 per windshield, and the windshield division incurs total fixed costs of $3,100,000 per year.

Since the windshield division is operating at full capacity, the transfer price should be based on the market price of $560 per windshield. This ensures that the division covers its variable costs and contributes towards covering the fixed costs. Therefore, the transfer price between the windshield and assembly divisions should be $560 per windshield.