Lakeside Industries operates as a decentralized organization. Its fishing gear division manufactures fishing lures. The...
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Lakeside Industries operates as a decentralized organization. Its fishing gear division manufactures fishing lures. The fiberglass division manufactures one component needed by the fishing gear division. The fishing gear division has been purchasing the component from an outside supplier, but top management has suggested that all purchases be made from another Lakeside division if possible. Detailed unit cost for the fiberglass component needed to make lures is given below:
Price charged to regular customers $2.00
Direct material $0.80
Direct labor $0.60
Manufacturing overhead $0.20
Total cost per unit $1.60
The manufacturing overhead is 60% fixed and 40% variable.
Required:
- What is the transfer price if Lakeside uses the cost-based price?
- What is the minimum transfer price?
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