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Alto Company produces and sells bags that can either be sold to outside customers or transferred to its subsidiary company. The following data for the
- Alto Company produces and sells bags that can either be sold to outside customers or transferred to its subsidiary company. The following data for the last year is available:
Alto Company:
Production capacity
18,000 bags
Selling price per bag to external customers
R20
Variable production cost per bag
R10
Variable selling cost per bag
R4
Subsidiary company
Number of bags needed annually
6,000
Price per bag paid to an external supplier
R16
Alto Company will avoid R3 per bag in selling costs by selling to its subsidiary. If Alto Company can sell only 10,000 bags annually to external customers, determine the lowest acceptable transfer price from the viewpoint of the selling division.
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