Spring Corp.has two divisions,Daffodil and Tulip.Daffodil produces a gadget that Tulip could use in its production.Tulip currently purchases 100,000 gadgets for $12.50 on the open market.Daffodil's variable costs are $6 per widget while the full cost is $9.35.Daffodil sells gadgets for $13 each.If Daffodil is operating at capacity,what would be the maximum transfer price Tulip would pay internally?
A)$6.00
B)$9.35
C)$12.50
D)$13.00

Question

Quizplus · Accepted Answer

The maximum transfer price Tulip would be willing to pay internally is the price it currently pays on the open market, which is $12.50. This is because paying more than the market price would not be economical for Tulip.