Question

In the Bombadier Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below: Division A: Division B Capacity in Units 100,000 Number of Units Needed 40,000 No of Units Sold Externally 60,000 External Purchase Price $74 Market Selling Price $75 Variable Cost Per Unit $58 Fixed Cost Per Unit $10 The company uses the opportunity cost approach to transfer pricing. What is the maximum transfer price

Answer 1

Answer:

$74

Explanation:

The maximum transfer price is the price that causes the receiving division to break even.

The receiving division can never accept a price greater that it can purchase the  product from an external market.

Therefore maximum transfer price is $74