Vicious Smells has two divisions: the Chemical Division and…
Vicious Smells has two divisions: the Chemical Division and the Container Division. The Container Division produces containers that can be used by the Chemical Division. The Container Division’s variable manufacturing cost is $3.50, variable shipping cost incurred by Container Division (cannot be avoided when selling internally) is $0.25, and the external sales price is $4.50 per container. The Chemical Division can purchase similar containers in the external market for $4.10. Assume the Container Division has no excess capacity, so selling the bottles internally requires sacrificing some external sales. Using the general (optimal) transfer pricing rule, the transfer price from the Container Division to the Chemical Division is: