McKenna\'s Florida Division is currently purchasing a part from an outside suppl
ID: 2599326 • Letter: M
Question
McKenna's Florida Division is currently purchasing a part from an outside supplier. The company's Alabama Division, which has excess capacity, makes and sells this part for external customers at a variable cost of $17 and a selling price of $29. If Alabama begins sales to Florida, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $4. If sales to outsiders will not be affected, Alabama would establish a transfer price of:
$13.
$17.
$25.
$29.
None of these.
Explanation / Answer
Alabama would establish a transfer price of $13 (17-4) Option 1 is correct