Question
Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers$87Variable
Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below:
Selling price to outside customers$87Variable cost per unit$64Total fixed costs$592,000Capacity in units37,000
Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $84 per unit and would substitute the part made by Division A. Division B requires 6,200 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?
- $87.
- $80.
- $16.
- $64.
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