Answer Happy

6. Transfer Pricing (10 points) Your company has two departments Department One and Department Two. Department One makes a small screw that they sell to Ace Hardware for $13 each. Department Two purchases a similar screw from Home Depot for $11 each. Department Two needs 4,000 screws annually. Department One (Screw making division) can make them for you and would be happy to sell them to you for $13 each, which is the price they sell them to external parties. Their cost includes $6 for direct materials and $3 for variable conversion costs. Fixed manufacturing overhead costs $2 each and cannot be avoided if parts are not made. REQUIRED: (Answer the questions by filling in the table). 3. Fill in the maximum transfer price under each of the three scenarios Fill in the minimum transfer price under each of the three scenarios. b. C. Should they transfer the parts or purchase from outside under each of the following scenarios? Capacity 20,000 units Capacity 20,000 units Current production Capacity 20,000 units 15,000 units 20,000 units Needs (as stated above) 4,000 units 4,000 units Amount that can be produced without 5,000 units interrupting sales Maximum transfer price per unit Minimum transfer price 0 units 17,000 units 4,000 units 3,000 units