manufactures motherboards for cor puters. The company ?? dded manufacturing and
ID: 2398004 • Letter: M
Question
manufactures motherboards for cor puters. The company ?? dded manufacturing and programming The manufacturing division makes the in te past, te managers of te two divisons have neg hated a transtr nto two divisions: board, and the programming division makes the adjustments required to meet the customers specifications. The average total cost division is about $525, and the average total cost per board incurred in the programming division is about $100. The average selling price of the boards is $825. The company is now operating at capacity, and increasing the volume of production is not a feasible alternatve (Click the icon to view additional information) t per unit of the boards in the manufacturing $150 per board Each of the managers receives a has been about $575, resulting in the manufacturing division recognizing a profit of about transfer price profit of about $50 per board and the programming division recognicing a bonus that is proportional to reported by his or her division ia Lbt Read the reouirements ResourRequirement (a) What transfer price would you recommend? Why Sorrentino Electronics should allow the seling division a price of s for the boards Setting this price wi inic alow both divisions to recognize a proft alow the manufacturing division's profit to absorb the programming division's loss allow the organization to maintain the credibiity, the motivational effect, and the economic insights of transfer pricing allow the organization to reduce the cost per unit for each divisionExplanation / Answer
Transfer pricing is the set of mechanisms which is used to attach prices to goods or services which are traded between two divisions of the same company. The transfer price is based on number of factors and different methods are there to fix the same.
Sorrentino Electronics should allow the selling division a price of $725 for the boards. Selling this price will allow organization to maintain the credibility, the motivational effect, and the economic insights of transfer pricing.
If the price is set at $725, both divisions hav equal profits and thus it is harmonious for both the divisions.
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