The Machining Division Makes a Component Part That the Assembly

question 36

Essay

The Machining division makes a component part that the Assembly division needs for a new product.The Machining division's variable cost of manufacturing the component is $25 per unit.The component is also available on the open market at a price of $45 per unit.The Assembly division needs 900 units per year, and the Machining division has excess capacity of 1,000 units.
Required:
a.Determine the cost-based transfer price that the Machining division should charge the Assembly division.
b.Determine the market-based transfer price that the Machining division should charge the Assembly division.
c.What arguments will the Machining division's manager and the Assembly division's manager make in an attempt to get the price each wants?

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Definitions:

Misdemeanor

A criminal offense that is less serious than a felony and generally punishable by fines, penalties, or a short term in jail.

Negligent Liability

Legal responsibility for harm caused as a result of failing to act as a reasonable person would have acted under similar circumstances.

Certified Public Accountant

A professional accountant who has met certain education and licensing requirements and is qualified to perform accounting services for the public.

Financial Trouble

A situation where an individual or organization struggles to meet financial obligations due to insufficient funds or mismanagement.