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Accounting

Fragrance, Inc. has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division incurs variable cost of $2.00 per unit, and its fixed cost is $.50 per unit. The Cologne Division can purchase similar containers from external suppliers for $2.90. The Bottle Division sells its containers to outside companies for $3.00 each. Assuming all of the containers produced by the bottle Division can be sold to outside companies, which of the following is the range at which a negotiated transfer price between the two divisions should occur?

a) A transfer price between $2.00 to $3.00

b) A transfer price between $2.00 to $2.90

c) A transfer price between $2.50 to $2.90

d) A transfer price between $2.50 to $3.00

There will be no transfer of containers from the Bottle Division to the Cologne Division.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M984015

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