Division X of XYZ Co. produces widgets. It has capacity to produce 25,000 widgets per month...

Transcribed Image Text:

Division X of XYZ Co. produces widgets. It has capacity to produce 25,000 widgets per month and incurs Fixed costs of $400,000 per month. Variable costs of $50 are incurred to produce each widget, which is sold to outside customers for $75 per unit. Division Y of XYZ Co. would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each month. Division X currently sells all of the units it can produce on the outside market. What should be the lowest transfer Division X will be willing to accept? Division X of XYZ Co. produces widgets. It has capacity to produce 25,000 widgets per month and incurs Fixed costs of $400,000 per month. Variable costs of $50 are incurred to produce each widget, which is sold to outside customers for $75 per unit. Division Y of XYZ Co. would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each month. Division X currently sells all of the units it can produce on the outside market. What should be the lowest transfer Division X will be willing to accept?

Answer rating: 100% (QA)

To determine the lowest transfer price that Division X will be willing to accept for the parts it pr... View the full answer