The Trailer division of Baxter Bicycles makes bike trailers that attach to bicyc

Question

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 $109 each. Each trailer incurs $44 of variable manufacturing costs The Trailer division has capacity for 25,000 trailers per year and incurs fixed costs of $510,000 per year. Required 1. Assume the Assembly division of Baxter Bicycles wants to buy 4,200 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' divisions? Transfer price per trailer 2. Assume the Trailer division currently only sells 10,900 trailers to outside customers, and the Assembly division wants to buy 4,200 trailers per year from the Trailer division. What is the range of acceptable prices that could be used on transfers between Baxter Bicycles' divisions? Transfer price per trailer will be at least but not more than

Explanation / Answer

1) Transfer price if Trailer division does not have spare capacity.

Transfer price = Variable cost+contribution margin to be los = 44+(109-44) = 109

Transfer price per trailer is $109

2) Transfer range if trailer division has sufficient capacity

Transfer price per trailer will be at least 44 but not more than 109

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