Best Practices, Inc., is a management consulting firm. Its Corporate Division advises private firms on the adoption and use of cost management systems. Government Division consults with state and local governments. Government Division has a client that is interested in implementing an activity-based costing system in its public works department. The division’s head approached the head of Corporate Division about using one of its associates. Corporate Division charges clients $600 per hour for associate services, the same rate other consulting companies charge. The Government Division head complained that it could hire its own associate at an estimated variable cost of $200 per hour, which is what Corporate pays its associates. Required: a. What is the minimum transfer price that Corporate Division should obtain for its services, assuming that it is operating at capacity? b. What is the maximum price that Government Division should pay? c-1. Is there any change in minimum transfer price as referred in part (a), if Corporate Division had idle capacity? c-2. Is there any change in maximum transfer price as referred in part (b), if Corporate Division had idle capacity?

See explanation

Explanation:

a. What is the minimum transfer price that Corporate Division should obtain for its services, assuming that it is operating at capacity?

The minimum transfer price that should be obtained by Corporate Division for its services would be the market price for the services which will be:

= $600

b. What is the maximum price that Government Division should pay?

The maximum price that the government division should pay would be the estimated variable cost which will be:

= $200 per hour.

c. 1. Is there any change in minimum transfer price as referred in part (a), if Corporate Division had idle capacity? c-2. Is there any change in maximum transfer price as referred in part (b), if Corporate Division had idle capacity?

In a scenario whereby the Corporate Division had idle capacity, then part (a) would be $200 per hour and then (b) won't be effected.

answer; correct answer is investing activity;

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