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Hello
I did not understand the calculation in part B. From the C Co point of view how did the answer of a maximum transfer price come to be $6,224,000?
C is currently selling $7,550 to Gearbox. However there is unsatisfied external demand – the $8,010 that they are selling externally is only 60% of the external demand. So they could sell an extra $5,340 externally and if they were to sell them to C then they need to charge $5,340.
That leaves 7,550 – 5,340 = $2,210 that they could not sell externally and therefore they could sell them to Gearbox at the marginal cost which is $884.
So the minimum total transfer price is 5,340 + 884 = $6,224.
(This is the minimum TP, not the maximum!)
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