Question

The Wood Division of Concord Corporation manufactures rubber moldings and sells them externally for $45. Its variable cost is $25 per unit, and its fixed cost per unit is $8. Concord’s president wants the Wood Division to transfer 4000 units to another company division at a price of $24. Assuming the Wood Division does not have any available capacity, the minimum transfer price it should accept is=== $8. $45. $25. $24.

Answer 1

Solution:

Given data,

Variable cost is = $ 25 per unit

Fixed cost is = $ 8 per unit

Division to transfer = 4000 units

Division at a price = $ 24

When transferor division does not have spare capacity then minimum transfer price

= Variable cost+Contribution to be lost

Minimum transfer price = Variable cost+Contribution to be lost

= 25+(45-25)

= $ 45

So answer is b) $45 is correct answer.

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