Word Wizard is a publishing company with a number of different book lines. Each line has contracts...

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Word Wizard is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Quick Press. The book lines and the printing operation each operate as a separate profit center. The printing operation earns revenue by printing books by authors under contract with the book lines owned by Word Wizard, as well as authors under contract with other companies. The printing operation bills out at $0.012 per page, and a typical book requires 512 pages of print. A manager from Business Books, one of the Word Wizard’s book lines, has approached the manager of the printing operation offering to pay $0.0071 per page for 1,470 copies of a 512-page book. The book line pays outside printers $0.0091 per page. The printing operation's variable cost per page is $0.0041.

Robert · Accepted Answer

a)      Assuming no available capacity, the printing operation�s variable cost is $0.004 per page and its opportunity cost is $0.006 ($0.01 � $0.004) per page. The minimum transfer price would be $0.01 ($0.004 + $0.006). Therefore, the printing operation
a)      Assuming no available capacity, the printing operation�s variable cost is $0.004 per page and its opportunity cost is $0.006 ($0.01 � $0.004) per page. The minimum transfer price would be $0.01 ($0.004 + $0.006). Therefore, the printing operation would not accept the internal transfer price of $0.007.
(b)      Assuming that the printing operation has available capacity, the printing operation�s variable cost is $0.

Word Wizard is a publishing company with a number of different book lines. Each line has contracts with a number of different authors. The company also owns a printing operation called Quick Press....

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