Question

The Mixed Nuts Division of Yummy Snacks, Inc. had the following operating results last year:

Sales (140,000 pounds of product) $70,000
Variable expenses $42,000
Contribution margin $28,000
Fixed expenses $12,000
Income $16,000
Yummy expects identical operating results in the division this year. The Mixed Nuts Division has the ability to produce and sell 200,000 pounds of product annually. Assume that the Trail Mix Division of Yummy wants to purchase an additional 20,000 pounds of nuts from the Mixed Nuts Division.
Mixed Nuts will be able to increase its profit by accepting any transfer price above:____________.
a) $0.25 per pound
b) $0.08 per pound
c) $0.15 per pound
d) $0.30 per pound
e) $0.10 per pound

Answer 1

d) $0.30 per pound

Step-by-step explanation:

The solution of minimum transfer price is provided below:-

Here, If the transferor division has spare capacity then variable cost per unit is the minimum transfer price also when the division of the transferor sells over variable cost per unit then the division of the transferor receives benefit.

Therefore,

Minimum transfer price = Variable expenses ÷ Pounds of product

= $42,000 ÷ $140,000

= $0.30 per pound

So, we have calculated the minimum transfer price by using the above formula.