Question

The fastener division of Southern Fasteners manufactures zippers and then sells them to customers for $8 per unit. Its variable cost is $3 per unit, and its fixed cost per unit is $1.50. Management would like the fastener division to transfer 12,000 of these zippers to another division within the company at a price of $3. The fastener division could avoid $0.20 per zipper of variable packaging costs by selling internally. Determine the minimum transfer price.

Answer 1

Answer and Explanation:

The computation of the minimum transfer price is shown below:

a. For Not operating at full capacity

Minimum transfer price = Variable cost + Opportunity cost

= $3 - $0.20 + 0

= $2.80

b. For operating at full capacity

Minimum transfer price = Variable cost + Opportunity cost

= $2.80 + $8 - $3

= $2.80 + $5

= $7.80

We simply applied the above formulas

So, that the each part could come