Question

Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines.

Indian 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 $720, 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?
$
Do you suppose that Indian and Maple divisions will choose to transfer at that price?
Maple Division Select chooses to transfer refuses to transfer Item 2
Indian Division Select chooses to transfer refuses to transfer Item 3
2. If Burt has a transfer pricing policy that requires transfer at market price, what would the transfer price be?
$
Do you suppose that Indian and Maple divisions would choose to transfer at that price?
Maple Division Select chooses to transfer refuses to transfer Item 5
Indian Division Select chooses to transfer refuses to transferItem 6
3. Now suppose that Burt allows negotiated transfer pricing and that Indian Division can avoid $120 of selling expense by selling to Maple Division.
Which division sets the minimum transfer price?
A. Indian
B. Division
C. Maple
D. Division
What is the minimum transfer price?
$
Which division sets the maximum transfer price?
A. Indian
B. Division
C. Maple
D. Division
What is the maximum transfer price?
$
Do you suppose that Indian and Maple divisions would choose to transfer somewhere in the bargaining range?
A. Yes
B. No

Answer 1

Burt Inc. has two divisions - Indian and Maple. The transfer pricing policies and possible transfer prices are discussed, along with the concept of negotiated transfer pricing.

Step-by-step explanation:

In this scenario, Burt Inc. has two divisions - Indian Division and Maple Division. Using the transfer pricing policy of full cost, the transfer price will be equal to the full cost of the h20-model pump, which is $540. However, it does not indicate whether Indian and Maple divisions will choose to transfer at this price.

Using the transfer pricing policy of market price, the transfer price will be equal to the market price of the h20-model pump, which is $720. Again, it is not clear whether Indian and Maple divisions will choose to transfer at this price.

With negotiated transfer pricing, Indian Division can avoid $120 of selling expense by selling to Maple Division. In this case, Indian Division sets the minimum transfer price, which is $120. Maple Division, on the other hand, sets the maximum transfer price, which can be equal to the market price of $720. Whether Indian and Maple divisions would choose to transfer somewhere in the bargaining range is not specified.

Answer 2

Check attachment for explanation