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Answer :
1. To determine the price that should be used on transfers between Baxter Bicycles' divisions, we need to consider the variable manufacturing costs, fixed costs, and the retail price of the trailers. The variable manufacturing cost per trailer is $80, and the fixed costs per year amount to $1,000,000. The retail price of each trailer is $200.
The transfer price should cover the variable manufacturing costs incurred by the trailer division, as well as a portion of the fixed costs. Since the assembly division wants to buy 15,000 trailers per year, the transfer price should be set to cover the variable manufacturing costs per trailer ($80) plus a portion of the fixed costs ($1,000,000/40,000 trailers = $25). Therefore, the transfer price should be $105 per trailer ($80 + $25). This ensures that the trailer division can recover its variable and fixed costs while selling to the assembly division.
The price to be used on transfers between Baxter Bicycles' divisions should be $105 per trailer. This price includes the variable manufacturing costs and a portion of the fixed costs, ensuring the trailer division's expenses are covered while selling to the assembly division.
2. The range of acceptable prices for transfers between Baxter Bicycles' divisions can be calculated by considering the variable manufacturing costs and the fixed costs per trailer.
To find the minimum acceptable price, we need to consider the variable manufacturing costs per trailer ($80) and the fixed costs per trailer ($1,000,000/40,000 trailers = $25). The minimum acceptable price would be the sum of these costs, which is $105 per trailer. This price ensures that the trailer division covers its expenses.
To find the maximum acceptable price, we can consider the retail price of the trailers ($200). The maximum acceptable price should not exceed the retail price, as it would be more profitable for the trailer division to sell directly to outside customers at the retail price.
The range of acceptable prices for transfers between Baxter Bicycles' divisions is from $105 to $200 per trailer. The minimum acceptable price ensures that the trailer division's costs are covered, while the maximum acceptable price does not exceed the retail price.
3. Commenting on the preferred transfer prices from the perspectives of the trailer division manager, the assembly division manager, and the top management of Baxter Bicycles:
- Trailer division manager: The preferred transfer price for the trailer division manager would be closer to the retail price of $200. This would maximize the division's revenue and profitability.
- Assembly division manager: The preferred transfer price for the assembly division manager would be closer to the variable manufacturing costs of $80. This would allow the assembly division to minimize costs and increase its own profitability.
- Top management of Baxter Bicycles: The preferred transfer price for top management would be one that balances the interests of both divisions. It should cover the trailer division's costs and provide a fair profit margin while allowing the assembly division to minimize costs.
The preferred transfer prices for the trailer division manager, assembly division manager, and top management of Baxter Bicycles may differ, but a transfer price that balances the interests of both divisions would be ideal. It should cover costs, provide a fair profit margin, and allow for overall profitability within the company.
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