RECOMMENDED!!USA Company’s Box Division: Transfer Pricing at Full Capacity

  

USA Company’s Box Division: Transfer Pricing at Full CapacityThe USA Company’s Box Division produces cardboard boxes used
for packaging microwavable fast foods. The Consumer Products Division produces
a variety of fast-food entrees that are packaged in boxes. In the past the
Consumer Products Division has purchased its boxes from the Box Division for
.15 each. The Box Division currently is producing at capacity and sells
6,000,000 of these boxes each year at a price of .15. The Consumer Products
Division has offered to buy 500,000 boxes per year from the Box Division at an
internal transfer price of .13 per box. The Box Division’s cost to produce each
box consists of 0.09 of variable costs and 0.04 of fixed costs.A. What is the minimum transfer price that would be
acceptable to the Box Division?
B. Assume that by selling the boxed internally, the Box
Division would avoid 0.03 of variable costs. Should the internal transfer be
accepted at 0.13 per box? Explain