Exercise 8-14

The Bathtub Division of Kirk Plumbing Corporation has recently approached the Faucet Division with a proposal. The Bathtub Division would like to make a special "ivory" tub with gold-plated fixtures for the company's 50-year anniversary. It would make only 4,800 of these units. It would like the Faucet Division to make the fixtures and provide them to the Bathtub Division at a transfer price of $160. If sold externally, the estimated variable cost per unit would be $130. However, by selling internally, the Faucet Division would save $6 per unit on variable selling expenses. The Faucet Division is currently operating at full capacity. Its standard unit sells for $44 per unit and has variable costs of $32. Compute the minimum transfer price that the Faucet Division should be willing to accept.

Minimum transfer price

$

Should they accept this offer?

They

should not acceptshould accept

this offer.