Chantilly Industries Has Two Divisions: the Triangle Division and the Square

question 52

Essay

Chantilly Industries has two divisions: the Triangle Division and the Square Division. The Triangle Division produces a component that is used by the Square Division. Information about that component is as follows:
The Triangle Division can produce up to 15,000 components per year. The Square Division needs 1,500 units of the component for a product it manufactures.
Required:

a.
Determine the minimum transfer price that the Triangle Division would accept.
b.
Determine the maximum transfer price that the Square Division would pay.
c.
If the Triangle Division produces and sells 15,000 units in a highly competitive market, what would be the correct transfer price?

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Definitions:

Quantity Discount

A pricing strategy that offers a reduced price per unit when products are purchased in larger quantities, encouraging bulk buying.

Warm Delights

Typically refers to products or services designed to provide comfort, satisfaction, or a sense of well-being to consumers.

Trade (Functional)

The activities and processes involved in the distribution of goods and services, facilitating the movement from producer to consumer while adding value through functions like transportation and warehousing.

Quantity Discounts

Quantity discounts refer to the reductions in price given by suppliers to buyers based on the volume of goods purchased.