The Engine Division of the Taylor Corporation sells small engines to the outside

Question

The Engine Division of the Taylor Corporation sells small engines to the outside market at a selling price of $142 per engine. The Engine Division is currently operating at a capacity of 47263 engines per year and is currently selling 37504 engines annually. The variable cost of producing an engine is $105. The Snowmobile Division of the Taylor Corporation currently purchases 19052 engines from an external supplier at a cost of $146 per engine.

What is the minimum transfer price for a transfer of 19052 engines from the Engine Division to the Snowmobile Division?

Select one:

a. $123.95

b. $105.00

c. $123.05

d. $146.00

The Bolton Corporation has 2 divisions. The Ramsay division is currently producing 4066 units (at capacity), all sold to an external market at $29.65 each. The Theon division needs 1257 units from Ramsay. Ramsay’s variable costs per unit are $5.95 and fixed costs at current production levels are $6.89 per unit. What is the minimum transfer price?

Select one:

a. $12.84

b. $23.70

c. $29.65

d. $5.95

Explanation / Answer

Answer

1.B $105

While selling it to the internal division the pricing would such to variable cost.

hence, the minimum transfer price for a transfer of 19052 engines from the Engine Division to the Snowmobile Division is $105

2.A $12.84

The minimum transfer price =variable cost +fixed cost=$5.95+$6.89 =$12.84

The division providing the goods/services internally often has the opportunity to sell these same goods externally instead and so the minimum they will be willing to charge another division is cost plus their profit margin (i.e. the minimum they would normally charge an external customer).

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