Question
Forever 2.1 makes and sells the latest toddler fashion clothing and accessories. As part of clothing production, the firm has two departments: the cutting department
Forever 2.1 makes and sells the latest toddler fashion clothing and accessories. As part of clothing production, the firm has two departments: the cutting department and the sowing department. The cutting department provides cut fabric for the sowing department. The firm uses negotiated transfer prices.
The sowing department can buy a yard of cut fabric for $1.70 on the external market.
The cutting department has the following details about its operations.
Variable manufacturing costs: $0.15 per yard of cut fabric Variable selling costs (on external sales): $0.25 per yard of cut fabric Fixed manufacturing costs: $1.00 per yard of cut fabric Market price: $1.75 per yards of cut fabric
The cutting department has excess capacity to produce 100,000 yards of cut fabric. The sowing department needs 150,000 yards of cut fabric.
What is the maximum negotiated transfer price?
| a. | $1.60 per yard of cut fabric | |
| b. | $0.60 per yard of cut fabric | |
| c. | $1.70 per yard of cut fabric | |
| d. | $1.40 per yard of cut fabric |
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