You have been given the assignment to read Beer School: Bottling Success at The Brooklyn Brewery. Upon completion of reading this informative book dealing with this real life rags to riches entrepreneurial….
What range would the transfer price fall into if it were negotiated between the two divisions?
Bellway Company produces components in its Parts division, located in France, that cost $40 per component in variable costs and sell on the market for $60 per component. Market demand for the components is unlimited, but Bellway incurs marketing costs of $5 per unit if they are sold on the market. Currently, Bellway transfers all 10,000 components it manufactures each year to the Assembly division, located in Florida, which uses two components in each of the 5,000 units it produces. In addition to the cost of the components, each unit costs $100 in variable costs, and sells on the market for $300. Fixed costs are $100,000 for the Parts division and $350,000 for the Assembly division. The tax rate is 20% in Florida and 35% in France. Calculate the transfer price if it is based on a. Variable cost with a 10% markup b. Full cost with a 10% markup c. Market price d. Which of the prices calculated above would the company as a whole most prefer? e. What range would the transfer price fall into if it were negotiated between the two divisions?