Question

Division A manufactures an aircraft engine component with unit variable product cost of $38 and market price of $50. Division A incurs shipping costs of $3 per unit for sales to outside parties only. Division B uses this component in the manufacture of its own engine production activities. Top management allows negotiated transfer pricing. If Division A is operating at full capacity, the maximum transfer price (the ceiling of the bargaining range) is: a. $38. b. $50. c. $44. d. $47. e. There is no bargaining range.

Answer 1

Answer:

The maximum transfer price would be $50.

Explanation:

The maximum transfer price is nothing but the market price for the product , which is the most simple way to derive a transfer price . Here by selling the components of aircraft engines at market price, there are very good chances of high profits to be earned. So the maximum transfer price should be $50.