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:

Sample

A group or set collected from a larger population for the purpose of statistical analysis, representing the larger group.

Hypothesis Testing

A statistical method that uses sample data to evaluate a hypothesis about a population parameter.

Statistical Analyses

The process of applying statistical methods to data in order to summarize, describe, and infer properties of the underlying distribution.