Question

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).

a. $1600
b. $40.00
c. $70.00
d. $62.00

Answer 1

The lowest acceptable transfer price for Division A is $109 per motor when considering both the variable cost of $47 and the lost contribution margin of $62 per motor.

Step-by-step explanation:

The lowest acceptable transfer price from the perspective of Division A of Harkin Company should be the variable cost per motor plus the contribution margin that Division A would forego by not selling externally. Since the variable cost is $47 per motor and contribution margin is $62 per motor, the lowest acceptable transfer price would be the sum of these two amounts.

The calculation is as follows:

• Variable Cost per Motor: $47
• Contribution Margin per Motor: $62
• Lowest Acceptable Transfer Price: $47 (variable cost) + $62 (contribution margin) = $109 per motor

Therefore, the lowest acceptable transfer price for Division A to consider would be $109 per motor to cover both the variable cost and the contribution margin lost from sales to outside customers.