Question 24

Arian International Corporation has two divisions, Division A and Division B. Division A produces a motor that sells for $95 per unit, with the following costs based on its capacity of 183,000 units:

Direct materials$29Direct labour24Variable overhead7Fixed overhead8

Division A is operating at 70% of normal capacity and Division B is purchasing22,500units of the same component from an outside supplier for $89per unit.

A) Calculate the benefit, if any, to Division A in selling to Division B the 22,500 units at the outside supplier's price.

B) Calculate the lowest price Division A would be willing to accept.

c) If Division A is operating at full capacity, what would be the lowest transfer price that it is willing to accept?