The trailer division of Baxter Bicycles makes bike trailers that attach to bicyc
ID: 2520837 • Letter: T
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 $43 of variable manufacturing costs. The trailer division has capacity for 29,000 trailers per year and incurs fixed costs of $430000 per year Required: 1. Assume the assembly division of Baxter Bicycles wants to buy 4,000 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's divisions? 2. Assume the trailer division currently only sells 9,500 trailers to outside customers, and the assembly division wants to buy 4,000 trailers per year from the trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Bicycles's divisions? 1. Transfer price per trailer 2. Transfer price per trailer will be at least but not more thanExplanation / Answer
Solution 1:
If trailer division can sell all of the trailers it manufactures to outside customers, then transfer price to Baxter Bicycle division should be equal to retail price to outside customers i.e. $96
Solution 2:
If trailer division currently only sells 9500 trailers to outside customer, it means trailer division had excess capacity to produce trailers. Therefore in this case, range of acceptable price that could be used on transfer between Baxter Bicycles division is variable cost per trailer to retail price per trailer.
It means transfer price per trailer will be at least $43 per trailer but not more than $96 per trailer.
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