Division A manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing. If Division A is operating at full capacity, the maximum transfer price (the ceiling of the bargaining range) is: a. $38. b. $50. c. $44. d. $47. e. There is no bargaining range.

Question

Business

Joy

2 February, 15:32

Division A manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing. If Division A is operating at full capacity, the maximum transfer price (the ceiling of the bargaining range) is: a. $38. b. $50. c. $44. d. $47. e. There is no bargaining range.

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Answers (1)

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Kiera Fritz · Answer 1

The maximum transfer price would be $50.

Explanation:

The maximum transfer price is nothing but the market price for the product, which is the most simple way to derive a transfer price. Here by selling the components of aircraft engines at market price, there are very good chances of high profits to be earned. So the maximum transfer price should be $50.