Question
Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures
Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market:
Selling price per unit (on the outside market) | $ | 59 | |
Variable cost per unit | $ | 45 | |
Fixed costs per unit (based on capacity) | $ | 4 | |
Capacity in units | 20,000 | ||
Division B could use Division As product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes. If the companys divisional managers are evaluated based their divisions profits and Division A is currently selling 18,000 units on the outside market, what is Division As lowest acceptable transfer price if it were to sell 4,000 units to Division B?
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