How does the presence or absence of idle capacity affect the optimal transfer-pricing policy

1. . Determine the acceptable range of transfer price if BB Tyres sells 39,500 van tyres to its external customers per month. (Round your answer to 2 decimal places.) (2 marks)

b. If BB Automobile proposes to buy van tyres at $50.00 each from BB Tyres, would the management of BB Tyres be interested in the proposal?
(1 mark)

1. a. BB Automobile proposes to buy van tyres at $50.00 each from BB Tyres. Determine the acceptable range of transfer price if BB Tyres sells 47,500 van tyres to its external customers per month. (Round your answer to 2 decimal places.)

(2 marks)

1. Will the management of BB Tyres accept the proposal?

(1 mark)

1. If BB Tyres’ monthly sales is 55,000 van tyres, would transfer take place?

Why or why not?
(1.5 marks)
Question one continued on the next page
4. How does the presence or absence of idle capacity affect the optimal transfer-pricing
policy?
(2.5 marks)

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