Question 29

Arian International Corporation has two divisions, Division A and Division B. Division A produces a motor that sells for $92 per unit, with the following costs based on its capacity of 182,000 units:

Direct materials$31Direct labour27Variable overhead10Fixed overhead9

Division A is operating at 70% of normal capacity and Division B is purchasing28,000units of the same component from an outside supplier for $87per unit.

Calculate the benefit, if any, to Division A in selling to Division B the 28,000 units at the outside supplier's price.

Benefit$

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

Lowest price$

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

Lowest transfer price$