Exercise $11-13($Algo$)$ Transfer Pricing Situations $[$L$011-3]$

$[$The following information applies to the questions displayed below.$]$

In each of the cases below, assume Division $x$ has a product that can be sold either to outside customers or to Division $Y$

of the same company for use in its production process. The managers of the divisions are evaluated based on their

divisional profits.

Exercise $11-13($Algo$)$ Part $1$

Required:

Refer to the data in case A above. Assume in this case that $$4$ per unit in variable selling costs can be avoided on intracompany

sales.

a$.$ What is the lowest acceptable transfer price from the perspective of the selling division?

b$.$ What is the highest acceptable transfer price from the perspective of the buying division?

c$.$ What is the range of acceptable transfer prices $($if any$)$ between the two divisions? If the managers are free to negotiate and make

decisions on their own, will a transfer probably take place?

Complete this question by entering your answers in the tabs below.

What is the range of acceptable transfer prices $($if any$)$ between the two divisions? If the managers are free to negotiate and

make decisions on their own, will a transfer probably take place?

Identify the range of acceptable transfer prices $($if any$)$:

There is not a range of acceptable transfer prices.

There is a range of acceptable transfer prices as shown below:

Are the managers likely to agree on a transfer price?

Yes

INo