Transfer Price – Video DivisionAt its Video Division, MCrew Entertainment manufactures
computer monitors. These can be sold internally to the EDD Division of MCrew or
externally to independent customers. Sales and costs of the most popular
monitor are as follows:Per unit selling price $134.00Per unit variable cost $103.00Per unit fixed costs* $
28.00Full production capacity 11,000
units per monthCurrent level of production 8,500
units per month*Based on full production capacityThe Video Division of MCrew plans to sell a maximum of
96,000 of these monitors to outside customers in the coming year. The EDD
Division of MCrew plans to buy 20,000 identical monitors from an outside
supplier at a price of $134. The manager of the Video Division has offered to
supply these 20,000 monitors to the EDD Division at a price of $130.A. What is the minimum transfer price for the monitor that
the Video Division should be willing to accept on an internal transfer? What is
the maximum price the EDD division should be willing to pay for these monitors
on an internal transfer?B. Suppose the managers of the EDD Division learn of the
idle capacity at the Video Division and make an offer of $122 for these
monitors. Would you expect the Video Division to accept? What would be the
effect on net income for the Video Division of accepting this offer?
C. What would be the effect on net income for MCrew as a
whole if the transfer price of $122 were accepted?
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