Question: Zenith Co . has two divisions: Processing & Assembly. The Processing Division manufactures auto frame panels then transfers the panels to the Assembly Division where

Zenith Co. has two divisions: Processing & Assembly. The Processing Division
manufactures auto frame panels then transfers the panels to the Assembly Division where
the panels are assembled into finished auto frames. The Processing Division is currently
working at capacity. The Processing Division incurs variable costs of $6,000 per unit to
manufacture and fixed manufacturing costs of $500,000. Finished frame units can be sold
externally for $8,500 per unit. Zenith manufactures and sells 10,000 frames externally per
year.
a. Using the general transfer pricing rule calculate the minimum transfer price at which the
Processing Division would sell frame panel units to the Assembly Division.

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