A facility manufactures microprocessors. The monthly fixed cost for running the factory is $100,000, and the variable manufacturing cost of each microprocessor is $30 per unit. The facility has a monthly manufacturing capacity of 1,000 units.
The manufacturing facility supplies microprocessors both to its distribution division and to an external customer. This Customer has a contract with the facility that says it will pay the manufacturing facility $80 per unit for each of unit up to 200 microprocessors transferred to it monthly.
Construct a transfer pricing schedule specifying the transfer price that the manufacturing facility of Oak Company should charge its distribution division for transferring microprocessors internally in accordance with the general rule of transfer pricing.
The facility has a 2nd contract with an external customer, in addition to the previously contract with another customer. The 2nd contract is with a company called, 2nd Customer. The contract with 2nd Customer stipulates that 2nd customer is willing to purchase up to 100 microprocessors monthly for $100 per unit from the manufacturing facility. The contract with External Customer and the contract with 2nd Customer are both in effect at the same time.
Construct a transfer pricing schedule for the internal transfer of microprocessors according to the general rule of transfer pricing.