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How could the situation be remedied using transfer price

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Question - Assume the Assembly Division's absorption cost of component is $340, which included $40 of applied fixed overhead costs. The transfer price has been set at $374, which is the Assembly Division's absorption cost plus a 10% mark up.

The Electrical Division has a special offer of $465 for its product. The Electrical Division incurs variable costs of $100 in addition to the transfer price for Assembly Division's components. Both divisions currently have spare production capacity.

Required -

1. Is the Electrical Division manager likely to want to accept or reject the special offer? Why?

2. Is this decision in the best interests of Green Energy Ltd as a whole? Explain.

3. How could the situation be remedied using transfer price?

Reference no: EM132493910

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