Solution-Briefly explain the concept of the target costing

Briefly explain the concept of the target costing

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Reference no: EM132552470

The Plush Company is a fully integrated automotive maker. To meet unexpected demand its Assembly Division makes an offer to purchase 90,000 batteries from Electrical Division @ $104 per battery. The cost for producing the batteries by the electrical division is a follows:

Direct Material- $40

Direct Labour- $20

Variable Overheads- $12

Fixed Overheads- $40

Total $112

Electrical Division has capacity for 350,000 and has been selling 250,000 per year @ $136 each. The Assembly Division had been buying batteries from outside sources for $130 each.

Question 1: If this is a one-time offer should the electrical division accept the price of $104 per unit for the order of the 90,000 batteries?

Question 2: Both divisions have been mandated to negotiate a transfer price to have the electrical division supply the assembly division on a longer-term basis. What would be the floor (lowest) and ceiling (highest) price to commence this negotiation?

Question 3: Briefly explain two transfer pricing methods that could be used in determining the transfer price.

Question 4: Briefly explain the concept of the target costing?

Reference no: EM132552470

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Briefly explain the concept of the target costing

Reference no: EM132552470

Reference no: EM132552470

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