Question

The Can Division of Sheffield Corp. manufactures and sells tin cans externally for $1.50 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.15, respectively. The Packaging Division wants to purchase 50,000 cans at $0.39 a can. Selling internally will save $0.04 a can. Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept? $0.24 $0.20 $0.35 $0.39

Answer 1

$0.20

Step-by-step explanation:

The computation of the minimum transfer price is shown below:

Minimum transfer price at sufficient capacity = Variable cost per unit - saving cost per unit

= $0.24 - $.04

= $0.20

By deducting the saving cost per unit from the variable cost per unit we can get the minimum transfer price at sufficient capacity and the same is shown above