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Problem 10: Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow: Capacity
Problem 10: Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow: Capacity in units ........................................ 60,000 Selling price per unit P40 Variable costs per unit P28 Fixed costs per unit at capacity P9 Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at P38 per unit. If Division A sells to Division B, P1 in variable costs can be avoided. Required: 1. Assume that Division A is presently operating at capacity, what is the lowest acceptable transfer price from the viewpoint of the selling division? 2. Assume that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into outside sales, what is the lowest acceptable transfer price from the viewpoint of the selling division
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