Division X manufactures a part that it sells to customers outside the company. The data related to this part appear below:

Sale price to external customers	$75
Variable cost per unit	$50
Total fixed costs	$400,000
capacity in units	25,000

Division Y of the same company would like to use the part made by Division X in one of its products. Division Y currently purchases a similar part made by an outside company at $70 per unit and would replace the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can now sell all the units it can produce in the foreign market. What should be the lowest acceptable transfer price from an X Division perspective?

Answer rating: 100% (QA)

From Division Xs perspective the lowest acceptable transfer price should be higher than its variable cost per unit 50 but lower than the price at whic... View the full answer