Question
The Bathtub Division of Pina Colada Plumbing Corporation has recently approached the Faucet Division with a proposal. The Bathtub Division would like to make a
The Bathtub Division of Pina Colada Plumbing Corporation has recently approached the Faucet Division with a proposal. The Bathtub Division would like to make a special "ivory" tub with gold-plated fixtures for the company's 50-year anniversary. It would make only 5,100 of these units. It would like the Faucet Division to make the fixtures and provide them to the Bathtub Division at a transfer price of $161. If sold externally, the estimated unit variable cost would be $145. However, by selling internally, the Faucet Division would save $6 per unit on variable selling expenses. The Faucet Division is currently operating at full capacity. Its standard unit sells for $51 per unit and has variable costs of $34.
A. Compute minimum transfer price
B. Should they accept this offer. Yes/No
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