Question

The materials used by the Holly Company's Division A are currently purchased from an outside supplier. Division B is able to supply Division A with 20,000 units at a variable cost of $42 per unit. The normal price that Division B normally sells its units is $53 per unit. What is the range of transfer prices within which the two division managers should negotiate? $ to $ per unit.

Answer 1

Answer:

The range of transfer price is $42 to $53

Explanation:

The rationale behind the recommended transfer price is that Division B cannot sell below the variable cost of $42. Division B cannot also sell above the prevailing market price of $53. The negotiation between the two divisions  ranges between $42 and $53.