TCO 8) The Chicago division sells goods internally to the Detroit division of the same company

(TCO 8) Milton Industries is a vertically integrated firm with several divisions that operate as decentralized
February 12, 2020
(TCO 7) Bozo Brothers purchased a machine that will be depreciated on the straight-line basis
February 12, 2020

TCO 8) The Chicago division sells goods internally to the Detroit division of the same company. The quoted

external price in industry publications from a supplier near Chicago is $200 per ton plus transportation. It costs $20 per ton to transport the goods to Detroit. Chicago’s actual market cost per ton to buy the direct materials to make the transferred product is $100. Actual per-ton direct labor is $50. Other actual costs of storage and handling are $40. The company president selects a $220 transfer price. This is an example of

market-based transfer pricing.

cost-based transfer pricing.

negotiated transfer pricing

cost plus 20% transfer pricing.

 
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