Current production levels in Manufacturing are 119,000 units. Assembly requests

Question

Current production levels in Manufacturing are 119,000 units. Assembly requests an additional 21,900 units to produce a special order. What transfer price would you recommend?

Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?

Suppose Manufacturing is operating at 209,000 units. What transfer price would you recommend?(Round your answer to 2 decimal places.)

Manufacturing Assembly Capacity (units) 219,000     119,000 Sales price * $ 116     $ 395 Variable costs† $ 56     $ 158 Fixed costs   $ 10,190,000     $ 6,190,000 * For Manufacturing, this is the price to third parties. † For Assembly, this does not include the transfer price paid to Manufacturing. Required: (a)

Current production levels in Manufacturing are 119,000 units. Assembly requests an additional 21,900 units to produce a special order. What transfer price would you recommend?

(b)

Suppose Manufacturing is operating at full capacity. What transfer price would you recommend?

(c)

Suppose Manufacturing is operating at 209,000 units. What transfer price would you recommend?(Round your answer to 2 decimal places.)

Explanation / Answer

Calculation of the transfer price a) The manufacturing has the excess capacity TP Variable Cost 56 Opportunity cost 46 ( 116-10190000/219000) Transfer price $102 b) Operating at Full Capacity The transfer price would be the selling price to others $116 c) The transfer price would be the Variable cost $ 56 due to the excess capacity

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