Reference no: EM132542749

Yamaha Company has two divisions, Electronic Division and Instrument Division. For several years, Electronic Division has manufactured a special glass container, which it sells to Instrument Division at the prevailing market price of $20. Electronic Division produces the electrical component containers only for Instrument Division and does not sell the product to outside customers. Annual production and sales volume is 20,000 containers.

A unit cost analysis for Electronic Division showed the following:

Cost Categories                                                        Costs per Container

Direct materials                                                     $ 3.50

Direct labor, 1¼ hours                                               2.30

Variable overhead                                                     7.50

Avoidable fixed costs: $30,000 /20,000                         1.50

Corporate overhead: $18 per direct labor hour                 4.50

Variable shipping costs                                                1.20

Unit cost                                                                $20.50

Corporate overhead represents the allocated joint fixed costs of production- building depreciation, property taxes, insurance, and executives' salaries. A profit markup of 20 percent is used to determine transfer prices.

Required:

Question 1: What would be the appropriate transfer price for Electronic Division to use in billing its transactions with Instrument Division

Question 2: If Electronic Division decided to sell some containers to outside customers, would your answer to requirement 1 change? Defend your response.

Question 3:  What would be the transfer price EXCLUDING all fixed cost?