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Ajax Division of Carlyle Corporation produces electric motors, 20% of which are sold to Bradley Division of Carlyle and the remainder to outside customers. Carlyle treats its divisions as profit centers and allows division managers to choose their sources of sale and supply. Corporate policy requires that all interdivisional sales and purchases be recorded at variable cost as a transfer price. Ajax Division’s estimated sales and standard cost data for the year ending December 31, 2012, based on the full capacity of 100,000 units, are as follows: Bradley Outsiders
Carlyle is considering permitting the division managers to negotiate the transfer price for 2013. The managers agreed on a tentative transfer price of $75 per unit, to be reduced based on an equal sharing of the additional gross margin to Ajax resulting from sales to Bradley at $75 per unit instead of at variable cost. To evaluate this proposal, Carlyle would like to compare it with current policy based on 2012 results. Under the proposed action, the actual transfer price for 2012 sales of 20,000 motors would have been
A. $67.50 B. $55.00 C. $60.00 D. $52.50 |