Question

art 7B costs the Midwest Division of Frackle Corporation $30 to make, of which $21 is variable. Midwest Division sells Part 7B to other companies for $47. The Northern Division of Frackle Corporation can use Part 7B in one of its products. The Midwest Division has enough idle capacity to produce all of the units of Part 7B that the Northern Division would require. What is the lowest transfer price at which the Midwest Division should be willing to sell Part 7B to the Northern Division?

Answer 1

TRANSFER PRICE = 21+0= $21

Step-by-step explanation:

Here we are provided with the following information:

1) variable cost per unit = $21

2) Fixed cost per unit = $ 9

3) selling price per unit = $ 47

Now we know that Midwest Division has idle capacity to produce all units of 7B for Northern Division.

TRANSFER PRICE = ADDITIONAL OUTLAY COST PER UNIT + OPPORTUNITY COST PER UNIT

In the given question , Additional outlay cost per unit = $21

Opportunity cost per unit = 0, as the division has idle capacity.

thus TRANSFER PRICE = 21+0= $21