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. While the Furniture Division has been operating at capacity (50,000 dressers per year) and selling them for $40 each, it expects to produce and sell only 40,000 dressers for $40 each next year. The Furniture Division incurs variable costs of $13 per dresser. The company policy is that all transfer prices are negotiated by the divisions involved.
Required:
a. What is the maximum transfer price?
b. Which division sets it?
c. What is the minimum transfer price?
d. Which division sets it?
Answers: 3
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Aulman Inc. has a number of divisions including a Furniture Division and a Motel Division. The Motel...
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