Question

Management of a local catering company would like the Food Division to transfer 10,000 containers of its final product to the Restaurant Division for $34.00. The Food Division sells the product to customers for $84.00 per unit. The Food Division's variable cost per unit is $30.00 and its fixed cost per unit is $18.00. If the Food Division is currently operating at full capacity, what is the minimum transfer price the Food Division should accept?

		$84.00
		$66.00
		$34.00
		$30.00

Answer 1

The correct option is A - $ 84

Below is the explanation :-

When the selling division is operating at full capacity, the minimum acceptable transferable price is Variable cost per unit and Opportunity costs which selling department would have by making outside sales.

As the food division is operating at full capacity the minimum acceptable transferable price for resturant division

Minimum transfer price (at full capacity) = (Variable cost per unit+ Opportunity costs)

Minimum transfer price (at full capacity) = (30+(84-30))

Minimum transfer price (at full capacity) = (30+54)

Minimum transfer price (at full capacity) = $ 84

Therefore, Minimum transfer price is $84 per unit