Daytona,Inc A the Maximum Transfer Price Per Litre of Paint Is

question 35

Essay

Daytona,Inc.has a division that makes paint and another division that constructs subdivision houses.The paint division incurs the following costs for one litre of paint:
The Paint Division can make 1,000,000 L per year and is at capacity.The Construction Division currently buys its paint from an outside supplier for $8.20 per litre (the same price that the Paint Division receives).
$\begin{array}{lr}\text { Direct materials } & \$ 2,101.10 \\\text { Direct labour } & 1,451.45 \\\text { Variable overhead } & 1,900.90 \\\text { Fixed overhead } & 2,151.15 \\\text { Total } & \$ 7,604 .60\end{array}$ A. The maximum transfer price per litre of paint is $\$$ _____This price is set by which of the two divisions?
B. The minimum transfer price per litre of $p$ aint is $\$$ _____ This price is set by which of the two divisions?

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Definitions:

Arbitrage

The simultaneous purchase and sale of the same assets in different markets to profit from unequal prices.

Vertical Contracts

Agreements between firms at different levels in the supply chain, such as between a manufacturer and a retailer, to control the terms of sale or distribution.

Upstream Price Discrimination

A pricing strategy where producers or wholesalers charge different prices to retailers or distributors, often based on the amount being purchased or the bargaining power of the buyer.

New Product

refers to a good or service recently developed or introduced to the market that fulfills a newly identified or existing customer need.