Transfer pricing aulman inc. has a number of divisions, including a furniture division and a motel division. the motel division owns and operates a line of budget motels located along major highways. each year, the motel division purchases furniture for the motel rooms. currently, it purchases a basic dresser from an outside supplier for $40. the manager of the furniture division has approached the manager of the motel division about selling dressers to the motel division. the full product cost of a dresser is $29. the furniture division can sell all of the dressers it makes to outside companies for $40. the motel division needs 10,000 dressers per year; the furniture division can make up to 50,000 dressers per year. also, assume that the company policy is that all transfer prices are negotiated by the divisions involved.
required:
1. what is the maximum transfer price? $ 40 which division sets it?
2. what is the minimum transfer price? $ 14 which division sets it?
3. conceptual connection: if the transfer takes place, what will be the transfer price? $ 40 does it matter whether or not the transfer takes place?
Answers: 2
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