The Trailer division of Baxter Bicycles makes bike trailers that attach to bicyc

Question

The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $96 each. Each trailer incurs $44 of variable manufacturing costs. The Trailer division has capacity for 22,000 trailers per year and incurs fixed costs of $490,000 per year.

Assume the Assembly division of Baxter Bicycles wants to buy 4,300 trailers per year from the Trailer division. If the Trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles' divisions?

Transfer price per tariler :

Assume the Trailer division currently only sells 9,400 trailers to outside customers, and the Assembly division wants to buy 4,300 trailers per year from the Trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Bicycles' divisions?

Tranfer price per trailer will be at least:

The Trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $96 each. Each trailer incurs $44 of variable manufacturing costs. The Trailer division has capacity for 22,000 trailers per year and incurs fixed costs of $490,000 per year.

Explanation / Answer

1) Transfer price per trailer = relevant cost + opportunity cost

= $ 44 + $ 52

= $ 96

2) Transfer price will be at least Variable cost ie. $ 44

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