The Molding Division of Cotwold Company manufactures a plastic casing used by th
ID: 2583714 • Letter: T
Question
The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $45 per unit. Variable costs for the casing are $ 32 per unit and fixed cost is $6 per unit. Cotwold executives would like for the Molding Division to transfer 28,000 units to the Assembly Division at a price of $38 per unit.
Assume that the Molding Division is operating at full capacity.
2. Identify the minimum transfer price that the Molding Division will accept.
Explanation / Answer
In this case the company not set the transfer price as per predetermined methods like market based methods or cost based methods.Accordingly negotiated price method would be applicable.Hence the transfer price shall fall between variable cost and market price.that is between $32 and $45.
Since there is a external market and molding division operates at full capacity the $38 transfer price is not acceptable.hence the minimum transfer price is $45