The management of James Corporation has decided to implement a transfer pricing system. James' MIS department is currently negotiating a transfer price for its services with the four producing divisions of the company as well as the marketing department. Charges will be assessed based on number of reports (assume that all reports require the same amount of time and resources to produce). The cost to operate the MIS department at its full capacity of 1,000 reports per year is budgeted at $45,000. The user sub-units expect to request 250 reports each this year. The cost of temporary labor and additional facilities used to produce reports beyond capacity is budgeted at $48.00 per report. James could purchase the same services from an external Information Services firm for $70,000. What amounts should be used as the ceiling and the floor in determining the negotiated transfer price?
Floor / Ceiling
a. $36.00 / $56.00
b. $45.60 / $56.00
c. $48.00 / $70.00
d. $57.00 / $82.00
Answer: B
CPA Exam
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