Question
Frocks and Gowns, Inc., has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $770,000 and produces (and
Frocks and Gowns, Inc., has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $770,000 and produces (and sells) 108,000 units of Collars at a market price of $10.40 per unit. Variable costs total $5.00 per unit, and fixed charges are $4.80 per unit (based on a capacity of 128,000 units). The Night Wear Division wants to purchase 27,000 units of Collars from The Day Wear Division. However, the Night Wear Division is only willing to pay $6.75 per unit. What is the minimum transfer price for the 27,000 unit order that the Day Wear Division would accept if it wishes to maintain its pre-order contribution?
$5.60.
$6.40.
$4.80.
$5.00.
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