Question

(appendix 11a) division a of harkin company has the capacity for making 3,000 motors per month and regularly sells 2,130 motors each month to outside customers at a contribution margin of $62 per motor. the variable cost is $47 per motor. division b of harkin company would like to obtain 1,400 motors each month from division a. what should be the lowest acceptable transfer price from the perspective of division a? (do not round intermediate calculations and round your final answer to the nearest whole dollar).

Answer 1

The lowest acceptable transfer price for Division A of Harkin Company to supply motors to Division B is at least equal to the variable cost per motor, which is $47. This ensures that Division A does not incur losses on the motors supplied to Division B.

Step-by-step explanation:

The student has asked to determine the lowest acceptable transfer price for Division A of Harkin Company to supply motors to Division B. Division A has a spare capacity to supply the motors, as it produces 3,000 motors but sells only 2,130 to outside customers. The contribution margin per motor is $62, and the variable cost is $47. Since the division is not operating at full capacity, it could potentially sell these motors to Division B.

For Division A, the lowest acceptable transfer price would not be less than the variable cost of $47 per motor because selling below the variable cost would result in a loss for each additional motor produced for Division B. Therefore, the minimum transfer price that Division A should accept is $47 per motor.