Part 1 The production process at Premium Castings includes eight processes, each of which is currently treated as a cost center with a specific set of operations to perform on each casting produced. Following the fourth processes’ operations, the rough castings have an external market. The fourth process must also supply the fifth process with its direct materials. Premium’s management wants to develop a new approach to measuring process performance. Is Premium a candidate for using transfer prices? Explain your answer.
Part 2 Should Premium Castings use cost-based, market-based, or negotiated transfer prices? Why?