question: Verbose Village is a publishing company with a number of different boo

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Verbose Village is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Quick Press. The book lines and the printing operation each operate as a separate profit center. The printing operation earns revenue by printing books by authors under contract with the book lines owned by Verbose Village, as well as authors under contract with other companies. The printing operation bills out at $0.010 per page, and a typical book requires 522 pages of print. A manager from Business Books, one of the Verbose Village's book lines, has approached the manager of the printing operation offering to pay $0.0071 per page for 1,120 copies of a 522-page book. The book line pays outside printers $0.0088 per page. The printing operation's variable cost per page is $0.0058.


Determine whether the printing should be done internally or externally, and the appropriate transfer price, under each of the following situations. (Round your answers to 4 decimal places, e.g. .1892.)

Explanation / Answer

When there is ready external market and exists idle capacity for Printing Operations, printing should be done internally. The minimum transfer price can be as low as the variable cost of Printing Operation i.e. $0.0058 per page. When there is ready external market and no idle capacity for Printing Operations, printing can be made internally or externally at the prevailing market price of $0.0088 per page.

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