1. The Safeway division of Amco Products manufactures batteries that it sells primarily to the Alpha Beta division for inclusion with that division’s main product. In 19A, half of the batteries were sold to outside companies at a price of $2 each. The remaining batteries went to the Alpha Beta division. Cost data for 19B for the Safeway division are given below.
|
Production |
120,000 units |
|
Variable manufacturing costs |
$1 20,000 |
|
Fixed overhead |
$60,000 |
|
Selling expenses (all variable) |
$30,000 |
|
Administrative expenses (all fixed) |
$20,000 |
What should be the transfer price for the batteries if the company uses:
(a) Market price?
(b) Variable cost?
(c) A negotiated transfer price that will yield a markup of 20 percent on its product cost
(absorption cost) for Safeway?
2. Prepare a schedule of Safeway division’s contribution margin for each of the transfer
pricing alternatives computed in part 1.