Castings moving from foundry to enameling get four candidate prices, one acceptable range and a figure both divisions can accept in this Unit 10 transfer pricing analysis for AC420. Searches like "ac 420 unit 10 assignment example", "ac420 unit 10 sample" and "ac420 unit 10 example" land here.
What a finished AC420 Unit 10 transfer pricing analysis looks like
A data block lists the facts both divisions agree on: 38,000 castings a year, foundry variable cost of 5.35 dollars, full cost of 7.90, an outside market price of 9.60, and 0.40 of freight and commission avoided on internal sales. Finishing adds 14.20 of variable cost and sells the enameled oven at 58.00. A four-row table then prices the transfer by method, variable cost, full cost plus 10 percent, market less avoided selling cost, and market, and shows each division's contribution beside a company column that reads 1,461,100 dollars on every row. Two range diagrams follow, one for a foundry with idle capacity, 5.35 to 9.60, and one for a foundry selling everything it pours, 9.20 to 9.60. A recommendation and two short letters close the analysis.
How a AC420 Unit 10 example is structured
The company column is read first, because it establishes that the transfer price moves profit between divisions without creating any; every later argument concerns incentives, not total earnings. Methods are ordered from lowest price to highest so the shift in divisional contribution reads as one steady transfer. The capacity question is then answered from the problem's facts, since it sets the minimum the foundry should accept: with outside customers waiting, 9.20, the market price less the selling costs an internal sale avoids. The maximum comes from the Finishing Division's alternative, an outside supplier at 9.60. The recommendation picks 9.20 as the floor that keeps both managers deciding in the company's interest. Two letters, one to each division head, state what each gives up, and a closing sentence prices the failure case: a foundry holding out above 9.60 while idle costs the company 161,500 dollars.
Facts both divisions accept
Volume, the foundry's variable and full costs, the outside casting price, avoided selling costs, and the enameling line's own costs and selling price, stated once.
Four prices, one company total
Variable cost, cost plus 10 percent, market less savings and full market each shift contribution between divisions while the company earns 1,461,100 dollars regardless.
Idle capacity or none
An idle foundry gains from anything above 5.35; one selling every casting outside gives up 9.60 less 0.40 of avoided costs on each transfer.
The ceiling Finishing sets
An outside foundry will supply comparable castings at 9.60, so no internal price above that survives a make-or-buy test by the buying division.
9.20, defended twice
The foundry earns what an outside sale would have netted; Finishing pays less than market. Each letter names what its reader concedes and why agreeing still pays.
Pricing the breakdown
If the foundry holds out above 9.60 while its molds sit idle and Finishing buys outside, the company forgoes 161,500 dollars of contribution.
Where marks go in AC420 Unit 10
Recommending a transfer price before establishing whether the selling division has idle capacity undermines more analyses on this topic than any other step, since the minimum acceptable price depends entirely on it. Ignoring the selling costs an internal sale avoids comes next; setting the price at full market credits the foundry with freight and commission it never pays. A table showing each division's profit but not the company total leaves the grader unsure the writer understood that transfers are internal. Full cost plus a markup defended as fair, with no word about the incentives it creates, reads as convention rather than analysis. Letters to the division heads that merely announce the price, without saying what each side gives up and why agreeing still pays, miss the persuasive half of the task.
Get a 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.
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.