BUS 202 Lecture 31: Transfer Pricing Problems
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Department
BUS - Business Administration
Course
BUS 202
Professor
Nick Ross
Semester
Spring

Description
Transfer Pricing Problems Wednesday, May 3, 2017 9:41 AM • Sako: ○ Selling price per unit on the intermediate market § $60 ○ Variable cost (per unit): § $42 ○ Fixed costs per unit based on capacity: § $8 ○ Capacity in units § 25,000 ○ High-Fi Division needs: § 5,000 speakers per year § Quote: □ $57 per speaker ○ Part 1: § Assume: □ Audio division sells 20,000 to outside units (5,000 left over) § Audio division: □ Lowest acceptable transfer price? ® $42 § Hi-Fi Division: □ Highest acceptable transfer price? $57 ® § Would they negotiate? □ Yes, they have 5,000 that they can still produce and they will pay more than variable and less than the quote ® $42 <= TP <= $57 § Should the transfer take place? □ Yes, they will be able to meet in the middle ○ Part 2: § The audio division is selling all of its speaker (25,000) □ Lowest from AUDIO DIVISION: ® $60 □ Highest from H-iFI: ® $57 □ If left to negotiate they will not trade because there is no number that will fit that range Transfer Pricing Problems Wednesday, May 3, 2017 9:41 AM • Sako: ○ Selling price per unit on the intermediate market § $60 ○ Variable cost (per unit): § $42 ○ Fixed costs per unit based on capacity: § $8 ○ Capacity in units § 25,000 ○ High-Fi Division needs: § 5,000 speakers per year § Quote: □ $57 per speaker ○ Part 1: § Assume: □ Audio division sells 20,000 to outside units (5,000 left over) § Audio division: □ Lowest acceptable transfer price? ® $42 § Hi-Fi Division: □ Highest acceptable transfer price? $57
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