The Knuckles and Brackets Division transfers a component product to the Assembly Division. Both…

The Knuckles and Brackets Division transfers a component product to the Assembly Division. Both divisions are part of Automakers Inc. and are organized as profit centers. Automakers has a general policy of using a 10 per cent markup for cost-based transfer prices. Knuckles and Brackets also can sell the component product in the open market to other automobile companies for $75. The cost to make the component is $55. By transferring the component internally, the Knuckles and Brackets Division saves $5 in sales expenses and transportation costs. The manager of the Knuckles and Brackets Division wants the transfer price to be $75 and the manager of the Assembly Division wants the transfer price to be $70. Which of the following are not true (select all appropriate answers):

a.       If the transfer price is $75, then the divisions are using a market-based transfer price.

b.       If the transfer price is $40, then the divisions are using a cost-based transfer price.

c.        If the transfer price is $70, then the divisions are using a negotiated transfer price.

d.       If the transfer price is $70, then both divisions are sharing the profits. e. If the transfer price is $55, then the Knuckles and Brackets Division is keeping all the profits.

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