Determining Transfer Price for Division X: Case A | Study

In each of the cases below, assume that 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: Case A B Division X: Capacity in units 176,666 176,666 Number of units being sold to outside customers 176,666 156,666 Selling price per unit to outside customers $ 57 $ 46 Variable costs per unit $ 34 $ 23 Fixed costs per unit (based on capacity) $ 7 $ 5 Division V: Number of units needed For production 26,666 26,666 Purchase price per unit now being paid to an outside supplier $ 52 $ 39 Required: 1-a. Refer to the data in case A above. Assume that $4 per unit in variable selling costs can be avoided on intracompany sales. Determine the transfer price of the selling division.