Question
Wetherald Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another
Wetherald Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below:
Capacity in units | 55,000 | |
Selling price to outside customers | $ | 82 |
Variable cost per unit | $ | 53 |
Fixed cost per unit (based on capacity) | $ | 11 |
The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump.
Assume that the Valve Division is selling all of the valves it can produce to outside customers. Also assume that $5 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs. What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?
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