Hill Manufacturing Is a Large Manufacturer That Produces a Part

Essay

Hill Manufacturing is a large manufacturer that produces a part that inserts into diesel engines. The company has several large divisions and the managerial accountant reported the part is currently produced in the assembly department. The managerial accountant reported that the variable selling expenses and manufacturing costs related to the production of this part include the following:
Another department at Hill Manufacturing is set up to produce the diesel part and could produce the part internally rather than purchase the part from an outside supplier. The managerial accountant reported that the other department has excess capacity and could produce the part in that department. There is a significant amount of competition in the marketplace and the current price to produce the part at the other internal department and a competitor is $1,500.
What is the highest transfer price that the managerial accountant should pay to purchase the part from a competitor? Calculate the lowest acceptable transfer price if the part was produced by the internal operations at the other department at Hill Manufacturing.