Question
Ballantine Corp. produces and sells expensive bicycles. It has two divisions, A and B: A produces the bicycle frame, and division B assembles the rest
Ballantine Corp. produces and sells expensive bicycles. It has two divisions, A and B: A produces the bicycle frame, and division B assembles the rest of the bicycle onto the frame. There is a market for both the frames and the final product. The following data are available for each division: Selling price for final product $280 Long-run average selling price for bicycle frame 160 Incremental cost per unit for completion in division B 170 Incremental cost per unit in division A 100 The manager of division B has made the following calculation: Selling price for final product $280 Transferred-in cost per unit (market) $160 Incremental cost per unit for completion 170 330 Contribution (loss) on product $ (50) Assume that division As maximum capacity for this product is 2,000 units per month and sales to the frame market are now 1,200 units. Assume that division A will maintain the $160 selling price indefinitely. If division B wants 900 units on an "All or None basis", what should be the minimum transfer price at which Division A is willing to supply B's order?
$100
$16
$106.67
$117.77
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