Cylinder Company has two divisions, Glass Division and Instrument Division. For

Question

Cylinder Company has two divisions, Glass Division and Instrument Division. For several years, Glass Division has manufactured a special glass container, which it sells to Instrument Division at the prevailing market price of $20. Glass Division produces the glass containers only for Instrument Division and does not sell the product to outside customers. Annual production and sales volume is 20,000 containers. A unit cost analysis for Glass Division showed the following: Corporate overhead represents the allocated joint fixed costs of production - building depreciation, property taxes, insurance, and executives' salaries. A profit markup of 20 percent is used to determine transfer prices. Required: What would be the appropriate transfer price for Glass Division to use in billing its transactions with Instrument Division? Round your answer to two decimal places. $ 24.60

Explanation / Answer

Price = $(20.50-7.5)*1.2+$7.5 = $23.1

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