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1. Answer Details A.) murder bell when the company has overmuch mental object: As the excellent motor divison has oversupply force, then(prenominal) we dupe to use the quest formula to adjust the dislodge bell, token(prenominal) transfer value = versatile address + probability monetary value here(predicate) multivariate cost per unit = $8 probability cost (contribution ma... A.) sell set when the company has excess aptitude: As the sm wholly motor divison has excess capacity, then we have to use the following formula to determine the transfer legal injury, minimum transfer price = Variable cost + prospect cost Here variable cost per unit = $8 Opportunity cost (contribution margin) = $0 (at excess capacity) So minimum transfer price at excess capacity = $8. B.) Transfer price when the company has no excess capacity: At no excess capacity, the company will stimulate and sells sole(prenominal) the limited units. Here the company should recei ve all the variable costs and contribution margin to go oning fire its costs. If the derogate division can non cover that amount -called minmu transfer price it should not sell its products.

Here the opportunity cost = selling price - variable cost = 30 - 8 Opportunity cost = $22 So negligible transfer price = Variable cost + Opportunity cost = $8 + 22 Minimum transfer price = $30 C). Effect of capacity on transfer price: Transfer price is affected by capacity of the concern. Let us see how the capacity could work on the transfer price. In the given problem we have dictatorial cost per unit, variable cost per unit and selling price per unit. What happened at the excess ca pacity the company could sell its products a! t reletively low price, since it has excess capacity so thst it can cover its costs by producing in bulk. But in puzzle of no excess capacity the company has to sell its products at theprice, that covers the variable cost as well as contribtion margin.If you hope to get a full essay, order it on our website: OrderEssay.net

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