Question

Spice Company has two divisions, Parsley and Sage. Parsley produces a unit that Sage could use in its production. Sage currently is purchasing 50.200 units from an outside supplier for $52. Parsley is operating at less than full capacity and has variable costs of $29 per unit. The full cost to manufacture the unit is $40. Parsley currently sells 450 200 units at a selling price of $56. If an internal transfer is made, variable shipping and administrative costs of $1.00 per unit could be avoided. What would be the maximum transfer price? Multiple Choice $52.00 oooo

Answer 1

Parsley is operating at less than full capacity, it currently sells 450,200 Units at a selling price of $56, having cost to manufacture the unit $40. Variable Cost amounting to $29 per unit, including $1 per unit relates to variable shopping and administrative costs, that could have been avoided if internal transfer is made as the division Parsley isn't operating at full capacity. Sage can buy this product from an outside supplier at $52 Minimum Transfer Price = $29 - $1 =$28 Maximum Transfer Price=$52 So the answer would be $52 (Maximum Transfer Price)