Figure 12-3 $\begin{array}{ll}
\text { Direct materials } & \$ 0.23 \
\text { Direct labor } & \$ 0.20 \
\text { Variable overhead } & \$ 0.95 \
\text { Fixed overhead } & \$ 1.32 \
\text { Total } & \$ 2.70
\end{array}$ Quinn has capacity to make 950,000 zippers per year, but due to a soft market, only plans to produce and sell 620,000 zippers next year. LeatherStuff currently buys zippers from an outside supplier for $3.50 each (the same price that Style receives).
-Refer to Figure 12-4. Assume that Quinn allows negotiated transfer pricing. What is the ceiling of the bargaining range and which division sets it?
A) $3.50; Style
B) $3.50; LeatherStuff
C) $2.70; Style
D) $2.70; LeatherStuff
E) $1.38; Style

Question

Quizplus · Accepted Answer

The ceiling of the bargaining range is set by the maximum price the buying division (LeatherStuff) is willing to pay, which is the current purchase price from the outside supplier, $3.50. LeatherStuff sets the ceiling because it determines the highest price it is willing to pay based on its current external purchase cost.

Figure 12-3 Quinn Has Capacity to Make 950,000 Zippers Per Year, but \\\text

Figure 12-3 Quinn Has Capacity to Make 950,000 Zippers Per Year, but \\
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