Question

urt inc. has a number of divisions, including the birch division, a producer of liquid pumps, and maple division, a manufacturer of boat engines. birch division produces the h20-model pump that can be used by maple division in the production of motors that regulate the raising and lowering of the boat engine's stern drive unit. the market price of the h20-model is $744, and the full cost of the h20-model is $540. required: 1. if burt has a transfer pricing policy that requires transfer at full cost: what will the transfer price be? fill in the blank 1 of 1$ do you suppose that birch and maple divisions will choose to transfer at that price? maple division chooses to transfer birch division refuses to transfer 2. if burt has a transfer pricing policy that requires transfer at market price: what would the transfer price be? fill in the blank 1 of 1$ do you suppose that birch and maple divisions would choose to transfer at that price? maple division chooses to transfer birch division chooses to transfer 3. now suppose that burt allows negotiated transfer pricing and that birch division can avoid $120 of selling expense by selling to maple division. which division sets the minimum transfer price? birch division what is the minimum transfer price? fill in the blank 1 of 1$ which division sets the maximum transfer price? maple division what is the maximum transfer price? fill in the blank 1 of 1$ do you suppose that birch and maple divisions would choose to transfer somewhere in the bargaining range? yes

Answer 1

The transfer pricing for the H2O-model pump under a full cost policy would be $540, under market price policy would be $744, and under negotiated transfer pricing the minimum would be $420 and the maximum would be $744.

Step-by-step explanation:

The question asks about transfer pricing policies within a company that has multiple divisions. Specifically, it focuses on the transfer price of a pump (H2O-model) used by the Birch Division and needed by the Maple Division for manufacturing boat engines.

1. If Burt Inc. requires transfers at full cost, then the transfer price would be $540, which is the full cost price for the H2O-model pump. Considering financial incentives, Maple Division may likely refuse to transfer at this price since they can purchase it at a lower price from the market, assuming market prices include their purchase volume.
2. If the policy mandates transfer at market price, the transfer price would be $744. It's more likely both divisions would agree to this price, as it reflects the price they would pay or receive on the open market.
3. Under negotiated transfer pricing, Birch Division would set the minimum transfer price which would be the full cost minus the $120 of avoided selling expenses, resulting in a minimum price of $420. Maple Division sets the maximum transfer price, which would be the market price of $744. Both divisions may agree to a transfer price within the range of $420 to $744, finding a mutually beneficial arrangement.