Question 16

Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:

.........................................................................................................Case 1..........Case 2

Division A:

Capacity in units.........................................................................100,000.........100,000

Number of units sold externally..................................................100,000...........60,000

Market selling price...........................................................................$91................$74

Variable costs per unit.........................................................................73..................58

Fixed costs per unit based on capacity..............................................10..................10

Division B:

Number of units needed for production.......................................40,000............40,000

Purchase price per unit from external supplier.................................$91................$74

...Additional purchase cost per unit to buy from an external supplier.....$2..................$1

The company uses the opportunity cost approach to transfer pricing. What is the maximum transfer price in Case 1?

$81

$91

$83

$93