Question

The Lumber Division of Sheffield Corp. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: Capacity 120000 board feet Price per board foot $4.50 Variable production cost per bd. ft. $1.25 Variable selling cost per bd. ft. $0.50 Construction Division: Board feet needed 30000 Outside price paid per bd. ft. $4.00 If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs. If current outside sales are 150000 board feet, what is the minimum transfer price that the Lumber Division could accept

Answer 1

$1.4

Step-by-step explanation:

Calculation to determine the minimum transfer price that the Lumber Division could accept

Using this formula

Minimum transfer price =Variable production cost per bd. ft.+(Variable selling cost per bd. ft. -per board foot saved in shipping costs)

Let plug in the formula

Minimum transfer price= $1.25 +($0.50-$0.35)

Minimum transfer price=$1.25+$0.15

Minimum transfer price=$1.4

Therefore the minimum transfer price that the Lumber Division could accept is $1.4