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 $92 each. Each trailer incurs $32 of variable manufacturing costs. The trailer division has capacity for 26,000 trailers per year and incurs fixed costs of $570,000 per year Required 1. Assume the assembly division of Baxter Bicycles wants to buy 5,700 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 9,600 trailers to outside customers, and the assembly division wants to buy 5,700 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? Transfer price per trailer 2. Transfer price prawill be at least but not more than

Explanation / Answer

Hey Dear Student!!

Vacant Capacity: 26000-9600= 16400 Trailers

Contribution from Outsiders= (92-32)9600= $576000

So Trailers Division can offer at Variable Cost with no profit and no loss so Range of Price can be $32 to $92

Not more than $92 because same is market price if we will charge more than this then Assembly division will purchase from outside which is not in interest of Organisation as a whole.

Thanks and Pleasure Teaching You!!

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