Question
Division A makes a part that sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $75
Division A makes a part that sells to customers outside of the company. Data concerning this part appear below:
Selling price to outside customers $75
Variable cost per unit $50
Total fixed costs $400,000
capcity in units 25,000
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 $70 per unit and would substitue the part made by Division A. Division B requires 5,00 units of the part each period. Division A can already sell all the units it can reduce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?
a. $66
b. $16
c. $75
d. $50
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