Question

Your answer is partially correct. Try again. The Bathtub Division of Kirk Plumbing Corporation has recently approached the Faucet Division with a proposal. The Bathtub Division would like to make a special "Ivory" tub with gold-plated fixtures for the company's 50-year anniversary. It would make only 4,900 of these units. It would like the Faucet Division to make the fixtures and provide them to the Bathtub Division at a transfer price of $170. If sold externally, the estimated variable cost per unit would be $140. However, by selling internally, the Faucet Division would save $10 per unit on variable selling expenses. The Faucet Division is currently operating at full capacity. Its standard unit sells for $49 per unit and has variable costs of $34. Compute the minimum transfer price that the Faucet Division should be willing to accept. Minimum transfer price 181485 Should they accept this offer? They should accept They this offer

Answer 1

Answer- The minimum transfer price will be = $145 per unit.

Explanation-Minimum transfer price = (Variable cost per unit-Saving in variable selling expenses due to transfer internally)+ Opportunity costs

= ($140 per unit-$10 per unit)+ ($49 per unit-$34 per unit)

= $130 per unit+$15 per unit

= $145 per unit

They should accept this offer because the offered transfer price (ie-$170 per unit) is exceed to minimum transfer price (ie-$145 per unit).