ABC Company has two divisions: Division A and Division B. Division A produces a product that it
Question:
ABC Company has two divisions: Division A and Division B. Division A produces a product that it sells to Division B for further processing. The current transfer price of the product is $60 per unit. Division B can process the product and sell it for $100 per unit. Division A is currently operating at full capacity and has no excess capacity to produce more products. The variable cost of producing the product is $40 per unit, and the fixed cost of Division A is $300,000. The company is considering whether to change the transfer price from $60 per unit to $80 per unit. What would be the impact of this decision on the company's overall profit? Show your calculations to support your answer.
Managerial Accounting Tools for business decision making
ISBN: 978-1118096895
6th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso