Calculating Transfer Price Best Inc. has a number of divisions, including the P1 Division, a producer of hydraulic pumps, and A1 Division, a manufacturer of motors. P1 Division produces the h20-model pump that can be used by A1 Division in the production of motors that regulate the raising and lowering of the motors's crane derrick.
The market price of the h20-model is $694, and the full cost of the h20-model is $540.
Required:
1. If Best Inc. has a transfer pricing policy that requires transfer at full cost: What will the transfer price be? $ Do you suppose that P1 Division and A1 Division will choose to transfer at that price? A1 Division P1 Division
2. If Best Inc. has a transfer pricing policy that requires transfer at market price: What would the transfer price be? $ Do you suppose that P1 Division and A1 Division would choose to transfer at that price? A1 Division P1 Division
3. Now suppose that Best Inc. allows negotiated transfer pricing and that P1 Division can avoid $120 of selling expense by selling to A1 Division. Which division sets the minimum transfer price? What is the minimum transfer price? $ Which division sets the maximum transfer price? What is the maximum transfer price? $ Do you suppose that P1 Division and A1 Division would choose to transfer somewhere in the bargaining range?