problem: The FRAMES “N MORE company has three divisions: Frames division, Glass division, and Pictures division. Frames division produces frames that are needed by Pictures division to manufacture final product. The firm has a negotiated transfer pricing policy.
Frames division’s unit costs and prices are as follows:
Selling price to outside customers $12.00
Variable cost of production $7.00
Fixed cost of production $4.00
Market price of frames $10.00
[A] find out Frames Division’s contribution margin for this product?
[B] What amount would be considered the maximum price, in this ex & what value would be the maximum price (floor)?
[C] If Frames has idle capacity, determine the probable transfer price? describe your answer.
[D] If Frames is currently operating at full capacity, find out the probable transfer price? describe your answer.