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Q16. The Can Division of Swifty Corporation manufactures and sells tin cans externally for $0.60 per...

Q16. The Can Division of Swifty Corporation manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.05 a can.

Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?

$0.28

$0.29

$0.69

$0.55

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Answer #1

Answer :-

The correct answer is Option D - $0.55

Explanation :-

In the question it was given that Can Division is already operating at full capacity

Then the minimum transfer price it should accept is equal to Units Variable cost - Savings by Selling internally + Contribution Margin

Units Variable cost = $0.24

Savings by selling internally = $0.05

Contribution Margin = Sell Price per unit - Variable Cost

Contribution margin = $0.60 - $0.24 = $0.36

Minimum transfer price = $ 0.24 - $0.05 + $0.36

Minimum transfer price = $0.55

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