Lakeside Industries' operates as a decentralized organization.Its tent division manufactures small camping tents.The fabricating division manufactures one component needed by the tent division.The tent division has been purchasing the component from an outside supplier, but top management has conducted a study and believes the company could substantially cut costs by all divisions purchasing any components made by other divisions internally rather than an outside source.Detailed unit cost for the fabricating component needed to make tents is given below: The manufacturing overhead is 60% fixed and 40% variable.
Required:
a.What is the transfer price if Lakeside uses the market-based price?
b.What is the minimum transfer price?

Question

Lakeside Industries' operates as a decentralized organization.Its tent division manufactures small camping tents.The fabricating division manufactures one component needed by the tent division.The tent division has been purchasing the component from an outside supplier, but top management has conducted a study and believes the company could substantially cut costs by all divisions purchasing any components made by other divisions internally rather than an outside source.Detailed unit cost for the fabricating component needed to make tents is given below:  The manufacturing overhead is 60% fixed and 40% variable.
Required: 
a.What is the transfer price if Lakeside uses the market-based price?
b.What is the minimum transfer price?

Quizplus · Accepted Answer

The Answer of Lakeside Industries' operates as a decentralized organization.Its tent division manufactures small camping tents.The fabricating division manufactures one component needed by the tent division.The tent division has been purchasing the component from an outside supplier, but top management has conducted a study and believes the company could substantially cut costs by all divisions purchasing any components made by other divisions internally rather than an outside source.Detailed unit cost for the fabricating component needed to make tents is given below:  The manufacturing overhead is 60% fixed and 40% variable.
Required: 
a.What is the transfer price if Lakeside uses the market-based price?
b.What is the minimum transfer price?

Lakeside Industries' Operates as a Decentralized Organization