Exercise 9-20B Determining transfer prices LO C2 The trailer division of Baxter

Question

Exercise 9-20B Determining transfer prices LO C2 The trailer division of Baxter Bicycles makes bike trailers that attach to bicycles and can carry children or cargo. The trailers have a retail price of $106 each. Each trailer incurs $39 of variable manufacturing costs. The trailer division has capacity for 28,000 trailers per year and incurs fixed costs of $560,000 per year. Required: . Assume the assembly division of Baxter Bicycles wants to buy 4,100 trailers per year from the trailer division. If the trailer division can sell all of the trailers it manufactures to outside customers, what price should be used on transfers between Baxter Bicycles's divisions? 2. Assume the trailer division currently only sells 10,200 trailers to outside customers, and the assembly division wants to buy 4,100 trailers per year from the trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Bicycles's divisions? 1. Transfer price per trailer 2. Transfer price per trailer will be at leastbut not more than

Explanation / Answer

1) Amount to charge = contribution loss from regulae sales +variable manufacturing cost

      = 67+ 39

        = $ 106 per trailer

**contribution loss =price -variable cost

     = 106 -39 = 67

2)The Price should be between $ 39 (variable manufacturing cost) but not more than $ 106

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