| Course | AC420 Cost Accounting |
|---|---|
| Unit | Unit 10 |
| Paper type | Transfer pricing analysis |
| Length | About 570 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC420 Unit 10
$9.20 a Casting, Defended to Both Sides: A Unit 10 Transfer Pricing Analysis Between a Foundry and an Enameling Line
[Student Name]
Purdue University Global
AC420: Cost Accounting
Unit 10 Transfer Pricing Analysis
[Instructor Name]
[Date]
Bellhaven Iron Works, its divisions and every figure are composite; the textbook, book and article cited are real.
Facts Both Divisions Accept
1. Volume: 38,000 castings a year.
2. Foundry variable cost: $5.35 a casting. Full cost: $7.90.
3. Outside market price for the casting: $9.60. Freight and commission avoided on an internal sale: $0.40.
4. Finishing Division variable cost added: $14.20. Selling price of the enameled Dutch oven: $58.00.
5. The foundry currently sells every casting it pours, inside or outside.
6. Finishing can buy equivalent castings from an outside foundry at $9.60.
Four Methods
Each row gives the transfer price, then each division's contribution and the company's.
1. Variable cost, $5.35: Foundry $0; Finishing $1,461,100; company $1,461,100.
2. Full cost plus 10 percent, $8.69: Foundry $126,920; Finishing $1,334,180; company $1,461,100.
3. Market less avoided selling cost, $9.20: Foundry $146,300; Finishing $1,314,800; company $1,461,100.
4. Market, $9.60: Foundry $161,500; Finishing $1,299,600; company $1,461,100.
The company column reads $1,461,100 on every row because a transfer price moves profit between divisions without creating any, so the choice among methods is a question of the incentives it gives each manager, not of total earnings.
The Range Under Two Conditions
Idle capacity in the foundry: the floor is its variable cost, $5.35, since an internal sale displaces nothing; the ceiling is Finishing's outside alternative, $9.60. Range: $5.35 to $9.60.
Full capacity, the actual condition: each internal transfer gives up an outside sale that would net $9.60 less $0.40, or $9.20. The floor is variable cost plus that lost contribution: $5.35 + $3.85 = $9.20. The ceiling remains $9.60. Range: $9.20 to $9.60.
Recommendation: $9.20
At $9.20 the foundry earns exactly what an outside sale would give it, so its manager has no reason to prefer outside customers, and Finishing pays less than its outside alternative, so its manager has no reason to buy elsewhere. Both make the choice the company would make. Internal sale beats outside sale by the $0.40 of freight and commission avoided, and $9.20 passes that saving to Finishing.
To the Foundry Manager
You might argue for the full $9.60 market price. But you would not receive $9.60 on an outside sale; after freight and commission you would net $9.20. The recommended price leaves you exactly as well off as selling outside, with no collection risk and a steady customer.
To the Finishing Manager
You might argue for full cost plus 10 percent, $8.69, since the foundry's costs are known. But at $8.69 the foundry would rationally divert castings to outside buyers, and your line would have to buy at $9.60. At $9.20 you save $0.40 a casting, $15,200 a year, against your alternative.
What the Methods Teach
Variable cost leaves the foundry with no contribution and no reason to supply. Full cost plus a markup passes the foundry's inefficiencies to Finishing. Market-based prices work when a competitive market exists, as Hirshleifer (1956) showed in his early analysis of transfer pricing, adjusted for costs an internal sale avoids (Datar & Rajan, 2021). Eccles (1985) found that companies rarely rely on one formula and often negotiate inside a range like this one, which is why the analysis states the range as well as the price.
References
Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.
Eccles, R. G. (1985). The transfer pricing problem: A theory for practice. Lexington Books.
Hirshleifer, J. (1956). On the economics of transfer pricing. The Journal of Business, 29(3), 172-184. https://doi.org/10.1086/294110
What the AC420 Unit 10 assignment asks for
The final AC420 unit asks you to set a transfer price between two divisions and defend it to both managers. List the facts both divisions accept: volume, the selling division's variable and full cost, any outside market price and the costs an internal sale avoids, and the buying division's costs and alternatives. Price the transfer under each method the course covers and show each division's contribution alongside the company's. Determine the range of acceptable prices, with the floor set by the seller's variable cost plus any opportunity cost and the ceiling by the buyer's best alternative, under each capacity condition. Recommend one price and explain how it leads both managers to the decision the company would make. Then answer each manager's likely objection directly. Close with what the methods teach. Cite the textbook and the transfer pricing literature in APA 7.
How the AC 420 Unit 10 example is put together
The sample lists six facts both divisions accept, from 38,000 castings to Finishing's $9.60 outside supplier. Four methods follow, each row giving the foundry, Finishing and company figures. The highlighted sentence states that the company column reads $1,461,100 on every row because a transfer price moves profit without creating it. The range section sets $5.35 to $9.60 with idle capacity and $9.20 to $9.60 at full capacity, since an internal sale gives up $3.85 of outside contribution. The recommendation explains why $9.20 leaves both managers indifferent to outside options while passing the $0.40 saving to Finishing. Two short sections answer the foundry's case for $9.60 and Finishing's case for $8.69. A closing section cites Hirshleifer, Datar and Rajan, and Eccles on negotiated ranges.
Where the points sit in the AC420 Unit 10 rubric
AC420 transfer pricing analyses are graded on correct calculations, a correctly bounded range and a recommendation that aligns divisional incentives with company profit. Each method's figures must be right, and showing that company profit does not change across methods demonstrates the core concept. The floor must include opportunity cost when the selling division is at capacity, and graders deduct heavily when it does not. The ceiling should come from the buyer's real alternative. The recommendation must explain how the price leads each manager to the company's best choice, not only that it falls within the range. Addressing each manager's objection shows the defense the unit asks for. Recognizing when negotiation or other methods apply shows breadth. The last points in this closing Purdue Global unit go to organization and APA 7 form.
AC420 Unit 10 help from the desk
Many Unit 10 analyses set the floor at variable cost even when the seller is at capacity, ignoring the outside sales it gives up. Others use full market price without subtracting costs an internal sale avoids. Division figures are shown without the company total, so the reader cannot see that the price only moves profit. The recommendation picks the midpoint of the range with no incentive argument. Only one manager's view is addressed. Tax rules are brought into a domestic problem. If your case has no outside market, multiple products or divisions in different countries, our writers can build the range and the recommendation for that structure.
Get an AC420 Unit 10 example written to your instructions
Transfer pricing problems differ in their capacity facts, so the Unit 10 case should come with both divisions' costs, any outside price, the volume and a statement about capacity, plus the rubric. The analysis returns in 24-48h with every method priced, the acceptable range derived and one price argued to each manager; your first custom sample is free. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC420 Unit 10 questions, answered
Why is market price minus avoided costs the floor at full capacity?
Because that is what the foundry actually gives up on each internal transfer. Selling a casting outside would earn 9.60 but require 0.40 of freight and commission, so the foundry nets 9.20. Any lower price makes internal sales worse than external ones for the foundry, and it would rationally refuse, even though the company might prefer the transfer.
What if there is no outside market for the castings?
Then the range runs from the foundry's variable cost, plus any opportunity cost, up to whatever the buying division could pay and still profit. Many companies use negotiated prices or cost-based formulas in that case, and the analysis often recommends a two-part price, variable cost per casting plus a fixed annual fee, so the foundry still covers its capacity cost.
Should tax or international issues be covered?
Only if your problem involves divisions in different tax jurisdictions. AC420 transfer pricing problems are usually domestic and managerial, focused on incentives and divisional performance. Where a case does cross borders, the sample adds a paragraph noting that tax rules then limit the permitted methods, without turning the analysis into a tax memo.
Where can I find a free AC420 Unit 10 sample paper?
This page holds a complete AC420 Unit 10 transfer pricing analysis between a composite foundry and enameling line, with four methods, ranges under two capacity conditions, a recommendation and APA 7 references.
Why does company profit not change across methods in AC420 Unit 10?
As long as castings move internally, the company's contribution is the oven's $58.00 price less $14.20 and $5.35 of variable cost on each of 38,000 units, $1,461,100. The transfer price only decides how that total is split.