Question

The Midwest Division of Frackle Corporation $30 to make, of which $21 is variable. Midwest Division sells Part 7B to other companies for $47. The Northern Division of Frackle Corporation can use Part 7B in one of its products. The Midwest Division has enough idle capacity to produce all of the units of Part 7B that the Northern Division would require. What is the lowest transfer price at which the Midwest Division should be willing to sell Part 7B to the Northern Division?

A. $30
B. $21
C. $47
D. $17
E. $20

Answer 1

correct option is B. $21

Step-by-step explanation:

given data

to make = $30

variable cost = $21

fix cost = $9

selling cost = $47

solution

we get here transfer price that is express as

transfer price = outlay cost per unit + opportunity cost per unit ...............1

here outlay cost is $21 and opportunity cost = 0 because division has idle capacity

so that put value in equation 1

transfer price = 0+ 21

transfer price = $21

so correct option is B. $21