Question

The Heating Division of Kobe International produces a heating element that it sells to its customers for $46 per unit. Its variable cost per unit is $29, and its fixed cost per unit is $5. Top management of Kobe International would like the Heating Division to transfer 14,800 heating units to another division within the company at a price of $32. The Heating Division is operating at full capacity. Assume that the units being requested are special high-performance units and that the division's variable cost would be $23 per unit (rather than $29). What is the minimum transfer price that the Heating Division should accept?

Answer 1

The minimum transfer price that the Heating Division should accept is $40 per unit.

Step-by-step explanation:

Minimum transfer price = Selling price to outsider + additional cost

= $46 + (23 -29)

= $40 per unit

Therefore, The minimum transfer price that the Heating Division should accept is $40 per unit.