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Minimum transfer pricing
I NEED HELP DETERMINING THE OPPORTUNITY COST SO I CAN FIGURE OUT THE MINIMUM TRANSFER PRICE
14-15. Apply Transfer Pricing Rules Best Practices, Inc. is a management consulting firm. Its Corporate Division advises private firms on the adoption and use of cost management systems. Government Division consults with state and local governments. Government Division has a client that is interested in implementing an activitybased costing system in its public works department. The division's head approached the head of Corporate Division about using one of its associates. Corporate Division charges clients $300 per hour for associate services, the same rate other consulting companies charge. The Government Division head complained that it could hire its own associate at an estimated variable cost of $100 per hour, which is what Corporate pays its associates. Required a. What is the minimum transfer price that Corporate Division should obtain for its services, assumingthat it is operating at capacity? b. What is the maximum price that Government Division should pay? c. Would your answers in (a) or (b) change if Corporate Division had idle capacity? If so, which answer would change, and what would the new amount be? |
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