Division A makes a part that it sells to customers outside of the company. Data concerning this
Question:
Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below
Selling price to outside customers $40
Variable cost per unit $30
Total fixed costs $10000
Capacity in units 20000
Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part from an outside company for $38 per unit and would like to by the part from Division A. Division B requires 3,000 units of the part each period. Division A is now selling only 15,000 units to outside customers.
Required:
a. What should be the lowest acceptable transfer price by Division A? (Show your calculations)
b. Assume that Division A has no excess capacity and sells all 20,000 units to outside customers, calculate the transfer price that Division A would be willing to accept. (Show your calculations)
c. If the selling expenses of Division A when selling to outside customers is $3. Calculate (a) and (b) above again.
Expert Answer:
Requirement a Capacity is 20000 units and sales demand from outside customers is 15000 units Hence t... View the full answer
