Question
Division X manufactures a part that it sells to customers outside the company. The data related to this part appear below: Sale price to external
Division X manufactures a part that it sells to customers outside the company. The data related to this part appear below:
Sale price to external customers | $75 |
Variable cost per unit | $50 |
Total fixed costs | $400,000 |
capacity in units | 25,000 |
Division Y of the same company would like to use the part made by Division X in one of its products. Division Y currently purchases a similar part made by an outside company at $70 per unit and would replace the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can now sell all the units it can produce in the foreign market. What should be the lowest acceptable transfer price from an X Division perspective?
Step by Step Solution
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Step: 1
From Division Xs perspective the lowest acceptable transfer price should be higher than its variable cost per unit 50 but lower than the price at whic...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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