Answer :
1. If the Trailer division can sell all of its manufactured trailers to outside customers, the transfer price between divisions should be set at the market price of $93 per trailer.
2. If the Trailer division currently sells only 9,000 trailers to outside customers and the Assembly division wants to buy 5,000 trailers, the range of acceptable transfer prices would be between $167.40 and $52 per trailer.
1. If the Trailer division can sell all of the trailers it manufactures to outside customers, the price on transfers between Baxter Bicycles' divisions should be set at the market price. In this case, the market price is the retail price of $93 per trailer.
2. To determine the range of acceptable prices for transfers between Baxter Bicycles' divisions, we need to consider the variable manufacturing costs and the opportunity cost of selling to outside customers.
The variable manufacturing cost per trailer is $41. Since the Assembly division wants to buy 5,000 trailers per year from the Trailer division, the total variable cost for these trailers would be $41 * 5,000 = $205,000.
If the Trailer division sells 9,000 trailers to outside customers, the revenue from those sales would be 9,000 * $93 = $837,000.
Therefore, the opportunity cost of selling 5,000 trailers to the Assembly division is $837,000 - $205,000 = $632,000.
The range of acceptable prices for transfers can be calculated as follows:
Minimum acceptable transfer price = Variable manufacturing cost per trailer + Opportunity cost per trailer
= $41 + ($632,000 / 5,000)
= $41 + $126.40
= $167.40
Maximum acceptable transfer price = Market price - Variable manufacturing cost per trailer
= $93 - $41
= $52
Therefore, the range of acceptable prices for transfers between Baxter Bicycles' divisions is $167.40 to $52 per trailer.
1. Transfer price per trailer: $93 (market price)
2. Transfer price per trailer will be at least $167.40 but not more than $52.
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