Question

The Book Division of Tandem books manufactures and sells paper back books for $9.60 per book. Its unit variable costs and unit fixed costs are $0.24 and $0.09, respectively. The Sunset Division wants to purchase 50,000 special edition hardback books. The variable cost will be $1.90 per book. Assuming the Tandem Division is already operating at full capacity, what is the minimum transfer price it should accept?

Answer 1

Minimum transfer cost will be $11.26

Step-by-step explanation:

Selling price of paper back books is $9.60 per book

Unit variable cost = $0.24

Unit fixed cost = $0.09

Variable cost for book = $1.90 per book

If the company is operating on full capacity then transfer price will be equal to

Transfer cost = variable cost + contribution to the lost.

So minimum transfer cost = $1.90+($9.60-$0.24) = $11.26

Therefore minimum transfer cost will be $11.26