Exercise 8-1 5 The Appraisal Department of Jean Bank performs appraisals of busi

Question

Exercise 8-1 5 The Appraisal Department of Jean Bank performs appraisals of business properties for loans being considered by the bank and appraisals for home buyers that are financing their purchase through some other financial institution. The department charges $161.41 per home appraisal, and its variable costs are $130.45 per appraisal Recently, Jean Bank has opened its own Home-Loan Department and wants the Appraisal Department to perform 1,300 appraisals on all Jean Bank-financed home loans. Bank management feels that the cost of these appraisals to the Home-Loan Department should be $149.75. The variable cost per appraisal to the Home-Loan Department would be $7.96 less than those performed for outside customers due to savings in administrative costs. Determine the minimum transfer price, assuming the Appraisal Department has excess capacity. (Round answer to 2 decimal places, e.g. 10.50.) Minimum transfer prices Determine the minimum transfer price, assuming the Appraisal Department has no excess capacity. (Round answer to 2 decimal places, e.g. 10.50.) Minimum transfer price Assuming the Appraisal Department has no excess capacity, should management force the department to charge the Home-Loan Department only $149.75?

Explanation / Answer

(a) Minimum transfer price = Variable cost - Saving variable cost
= $130.45 - $7.96 = $122.49

(b) Minimum transfer price = Charges for outside customer's
= $161.41

(c) No

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