Q1) Fragrance, Inc. has two divisions-Cologne Division and Bottle Division. Company is decentralized, and each division is estimated as a profit center. Bottle Division makes bottles which can be used by Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00, and shipping costs are $0.10 per unit. Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to Cologne Division. Cologne Division can buy similar bottles in external market for $2.50.
1. Bottle Division has enough capacity to meet all external market demands additionally to meeting demands of Cologne Division. Use general transfer pricing rule to find out transfer price from Bottle Division to Cologne Division.
a. $2.00
b. $2.10
c. $2.50
d. $2.90
e. $3.00
2. Suppose the Bottle Division has no excess capacity and could sell everything made externally. Use general rule to find out transfer price from Bottle Division to Cologne Division.
a. $2.00
b. $2.10
c. $2.50
d. $2.90
e. $3.00
3. What is maximum amount Cologne Division would be eager to pay for bottles?
a. $2.00
b. $2.10
c. $2.50
d. $2.90
e. $3.00