Transfer Pricing

The materials used by the Multinomah Division of Isbister Company are currently purchased from outside suppliers at $90 per unit. These same materials are produced by the Pembroke Division. The Pembroke Division can produce the materials needed by the Multinomah Division at a variable cost of $75 per unit. The division is currently producing 120,000 units and has capacity of 150,000 units. The two divisions have recently negotiated a transfer price of $82 per unit for 15,000 units.

By how much will each division's income increase as a result of this transfer?

Pembroke Division $

Multinomah Division $

Question

Alexandria

Business

21 December, 15:24

Transfer Pricing

The materials used by the Multinomah Division of Isbister Company are currently purchased from outside suppliers at $90 per unit. These same materials are produced by the Pembroke Division. The Pembroke Division can produce the materials needed by the Multinomah Division at a variable cost of $75 per unit. The division is currently producing 120,000 units and has capacity of 150,000 units. The two divisions have recently negotiated a transfer price of $82 per unit for 15,000 units.

By how much will each division's income increase as a result of this transfer?

Pembroke Division $

Multinomah Division $

+2

Answers (1)

Know the Answer?

Gianni Valdez · Answer 1

Pembroke = $105,000

Multinomah = $120,000

Explanation:

Giving the following information:

The materials used by the Multinomah Division of Isbister Company are currently purchased from outside suppliers at $90 per unit. These same materials are produced by the Pembroke Division.

The Pembroke Division can produce the materials needed by the Multinomah Division at a variable cost of $75 per unit. The division is currently producing 120,000 units and has capacity of 150,000 units. The two divisions have recently negotiated a transfer price of $82 per unit for 15,000 units.

Pembroke = 15,000 * (82 - 75) = $105,000

Multinomah = 15,000 * (90 - 82) = $120,000