Manny's Manufacturing Case Study

Manny's Manufacturing specializes in manufacturing customer-made office desks. The company comprises two primary divisions, Machining and Assembly. Machining produces the unfinished wood components of the desk, while Assembly assembles, paints and polishes the final product. A market exists for the unfinished wood components and for the final product. Assume that Machining's capacity for this product is 1,000 units per month and sales to the intermediate market are currently 800 units per month. Both selling prices will maintain indefinitely (i.e., $200 for the intermediate product and $300 for the final product) - external prices will not be lowered even if excess capacity exists. Each division has been designated a profit center. The following data are available to each division:

See Manny's Attachment 1

Should the 200 remaining units in Machining be transferred to Assembly? ___________ At what transfer price? Why? If Assembly wants 300 units. Would the suggested price from #1 be different? If so, how would it change?