Question: Refer to information in QS. If the Windshield division has excess capacity, what is the range of possible transfer prices that could be used on transfers between the Windshield and Assembly divisions? Explain.
QS: The Windshield division of Cargo Co. makes windshields for use in Cargo's Assembly division. The Windshield division incurs variable costs of $350 per windshield and has capacity to make 100,000 windshields per year. The market price is $600 per windshield. The Windshield division incurs total fixed costs of $3,000,000 per year. If the Windshield division is operating at full capacity, what transfer price should be used on transfers between the Windshield and Assembly divisions? Explain.