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Transfer Pricing: Various Computations

Corning Company has a decentralized organization with a divisional structure. Two of these divisions are the Appliance Division and the Manufactured Housing Division. Each divisional manager is evaluated on the basis of ROI.

The Appliance Division produces a small automatic dishwasher that the Manufactured Housing Division can use in one of its models. Appliance can produce up to $20,000$ of these dishwashers per year. The variable costs of manufacturing the dishwashers are $$98.$ The Manufactured Housing Division inserts the dishwasher into the model house and then sells the manufactured house to outside customers for $$73,000$ each. The division's capacity is $4,000$ units. The variable costs of the manufactured house $($in addition to the cost of the dishwasher itself$)$ are $$42,600.$

Required:

Assume each part is independent, unless otherwise indicated.

Assume that all of the dishwashers produced can be sold to external customers for $$320$ each. The Manufactured Housing Division wants to buy $4,000$ dishwashers per year. What should the transfer price be$?$

$

Refer to Requirement $1.$ Assume $$24$ of avoidable distribution costs. Identify the maximum and minimum transfer prices.

Identify the actual transfer price, assuming that negotiation splits the difference.

$

$3.$ Assume that the Appliance Division is operating at $75.$percent capacity. The Manufactured Housing Division is currently buying $4,000$ dishwashers from an outside supplier for $$290$ each. Assume that any joint benefit will be split evenly between the two divisions. What is the expected transfer price?

$ per unit

How much will the profits of the Appliance Division increase, assuming that it sells the extra $4,000$ dishwashers internally?

$

How much will the profits of the firm increase under this arrangement?

$

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