Question
One production department uses an input made by another production department. The buying department can buy this input on the open market for $125. The
One production department uses an input made by another production department. The buying department can buy this input on the open market for $125. The following per unit financial information pertains to the selling department.
Market price $148
Variable selling/distribution costs on external sales 10
Variable manufacturing cost 75
Fixed manufacturing cost 37
The buying department needs 20,500 units of this input, but the selling department only has excess capacity to produce 3,500 units. What is the the minimum transfer price that can be negotiated (rounded to nearest dollar if necessary)?
a. | No transfer price possible. | |
b. | $122. | |
c. | $100. | |
d. | $75. |
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