Reference no: EM133520898

Case Stidy: Accent Company has two divisions Glass and Florist. The Glass Division makes glass vases, which have the following unit costs:

Variable Cost $2.40

Fixed overhead 1.30

The Florist Division of the company sells cut flowers and uses glass vases. The Florist Division uses 10,000 glass vases annually and currently buys them from an outside supplier for $3.50 each. The Glass Division produces 100,000 glass vases per year and sells them all on the external market for $4.00 each. Vases sold outside incur a sales commission of $0.30 per Vase; this commission would not be paid on internal transfers.

Required:

A. What is the current Transfer Price if the Glass division like to sell 10,000 units to The Florist Division? Explain.

B. Both managers met and agreed on a transfer price of $3.25 per vase. Is this a good idea for each division? Explain.

C. Due to the economic condition The Glass division can only sell 85,000 units to the regular market, should the transfer take place, and if so, what is the transfer price, explain.