Question

The Can Division of Sheridan Company manufactures and sells tin cans externally for $0.70 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.07, respectively. The Packaging Division wants to purchase 50,000 cans at $0.31 a can. Selling internally will save $0.03 a can. Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept?

a) $0.31
b) $0.21
c) $0.24
d) $0.28

Answer 1

b) $0.21

Step-by-step explanation:

Calculation to determine the minimum transfer price it should accept.

Using this formula

Minimum transfer price = Variable cost per unit - saving cost per unit

Let plug in the formula

Minimum transfer price = $0.24 - $.03

Minimum transfer price = $0.21

Therefore the minimum transfer price it should accept is $0.21