Question
Division S produces a component that is used by Division B. Division Ss unit costs of manufacturing the component are: Direct materials $60; Direct labor
Division S produces a component that is used by Division B. Division Ss unit costs of manufacturing the component are: Direct materials $60; Direct labor $16; Variable overhead $20; Fixed overhead $24 (based on a practical volume of 250,000 components).
Division S also incurs these costs: fixed selling & administrative $1,200,000, and variable selling $4/unit.
Division S expects to sell only 200,000 components next year. The variable selling expenses are avoidable if the component is sold internally.
Division B has been buying the same component from an external supplier for $160 each. It expects to use 40,000 units of the component next year. The manager of Division B has offered to buy 40,000 units from Division S for $112 each.
The maximum transfer price should be:
a. | $120 | c. | $96 |
b. | $160 | d. | $76 |
15. Refer to the data in question 14. The minimum transfer price should be:
a. | $120 | c. | $96 |
b. | $100 | d. | $60 |
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