Topic: Transfer of pricing

Uninder Corporation produces automobile parts and it primarily sells parts to external customers. One of its subsidiary companies uses a part which can be produced by Uninder Corporation and it requires 10,000 units annually. Uninder Corporation has no idle capacity. The subsidiary company has a bid from an external supplier for the parts at 31.00 per unit. The variable production costs for these parts would amounts to 12.00 per unit. Packaging and shipping costs for the part would be only 2.00 per unit. To fill the order from the subsidiary company, Uninder should give up the production of another part, TW3. It sells the part for 35.00 per unit, and requires 13.00 per unit in variable production costs. Packaging and shipping costs for TW3 would be only 3.00 per unit. The company is producing and selling 50,000 units of the TW3 each year. The production and sales of the TW3 would drop by 10% if the part is produced for the subsidiary company.

Required

1. Calculate the minimum price that would be acceptable for the Uninder Corporation to retain the present profit.
2. Calculate the opportunity cost per unit for the Uninder Company
3. If the lowest acceptable transfer price to the selling division is 90 and the lost contribution margin per unit on outside sales is 40, determine the variable cost per unit.