Whitney Company treats each division as a profit center and expects a 20 percent profit on its total production costs.Division A produces a part that it sells externally for $19.00.It also supplies this part to other internal divisions.Its production cost for the part is $13.70.
-What should be the transfer price for the part using the negotiated-price approach,assuming a mid-point between the floor and ceiling is agreed upon?

Question

Quizplus · Accepted Answer

The floor price is the production cost of $13.70, and the ceiling price is the external sale price of $19.00. The midpoint between these two prices is ($13.70 + $19.00) / 2 = $16.35. This is the negotiated price assuming a midpoint agreement.

Whitney Company Treats Each Division as a Profit Center and Expects