Question

Joe Gazelle Corporation makes power tools. The Motor division makes a motor that the Small Tools division needs for a new product.
The Motor division's variable cost of manufacturing the component is $6 per unit. The component is also available on the open market at a price of $11 per unit. The Small Tools division needs 50,000 motors per year.

Required
a. If the Motor Division has adequate excess capacity to supply the 50,000 motors, what is the minimum transfer price?
b. If the Motor Division has adequate excess capacity to supply the 50,000 motors, what is the range of prices that is likely to be acceptable to both the Motor division and the Small Tools division?



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  • CreatedFebruary 21, 2014
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