Question

The Can Division of Marigold Corp. manufactures and sells recyclable containers externally for $0.60 per container. Its unit variable costs and unit fixed costs are $0.24 and $0.07. respectively. The Packaging Division wants to purchase 50,000 containers at $0.37 per unit. Selling internally will save $0.07 a container, Assuming that the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?

A)$0.53
B) $0.75
C) $0.23
D) $0.44

Answer 1

The minimum transfer price the Can Division should accept for selling containers to the Packaging Division is $0.53, which is the external selling price minus savings from not selling externally.

Step-by-step explanation:

The student is dealing with a transfer pricing problem within a corporation between its divisions.

Since the Can Division of Marigold Corp. is operating at full capacity, the minimum transfer price it should accept is the external selling price minus any savings from internal transfer (i.e., external sale price per container - savings per container).

The external selling price is $0.60 per container, and selling internally will save $0.07 per container, so the calculation is $0.60 - $0.07, resulting in a minimum transfer price of $0.53.

Therefore, the answer is A) $0.53, which is the least they should accept for the transfer within the corporation divisions, assuming full capacity.