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1. Answer Details A.) murder bell when the company has lavishness mental object: As the excellent motor divison has superfluous force, past we dupe to use the quest formula to fancy the channel bell, token(prenominal) transfer value = inconstant address + luck damage here(predicate) covariant cost per unit = $8 prospect cost (contribution ma... A.) carry charge when the company has excess expertness: As the sm wholly motor divison has excess capacity, then we have to use the following formula to determine the transfer charge, negligible transfer price = Variable cost + prospect cost Here variable cost per unit = $8 Opportunity cost (contribution margin) = $0 (at excess capacity) So minimum transfer price at excess capacity = $8. B.) Transfer price when the company has no excess capacity: At no excess capacity, the company will stimulate and sells simply the limited units. Here the company should receive all the variable costs and contribu tion margin to dissembleing fire its costs. If the denigrate division cannot cover that amount -called minmu transfer price it should not sell its products.

Here the opportunity cost = selling price - variable cost = 30 - 8 Opportunity cost = $22 So nominal transfer price = Variable cost + Opportunity cost = $8 + 22 Minimum transfer price = $30 C). Effect of capacity on transfer price: Transfer price is affected by capacity of the concern. Let us see how the capacity could exploit the transfer price. In the given problem we have arrogant cost per unit, variable cost per unit and selling price per unit. What happened at the excess capacity the company could sell its produc ts at reletively low price, since it has exc! ess capacity so thst it can cover its costs by producing in bulk. But in perplex of no excess capacity the company has to sell its products at theprice, that covers the variable cost as well as contribtion margin.If you cartel to get a full essay, order it on our website: OrderEssay.net

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