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The company anticipated that the restorers would work a total of 12.000 hours this year. Expected parts and materials were $1

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Answer #1

1) Minimum transfer price = Variable cost + opportunity cost

Minimum transfer price = $11 + $0 = $11

2) Opportunity cost = $35 - $11 = $22

Minimum transfer price = Variable cost + opportunity cost

= $11 + $22

= $35

3) The level of capacity has an important role in computation of the appropriate transfer price. When there is excess capacity then the firm would incur the variable cost in it's production and as long as firm receives higher than the variable cost, it has a net gain. In the other hand when there is no excess capacity the firm has to forgo other projects thus creating an opportunity cost and increase in transfer price

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