The national division of Nero International Company is buying 20,000 widgets from an outside supplier at $75 per unit. Nero International's overseas division, which is producing and selling at full capacity (25,000 units), has the following sales and cost structure:
Sales price per unit Variable cost per unit Fixed cost (at capacity) per unit
Instructions
(a) Determine the minimum transfer price if the national division buys 5,000 widgets from the Overseas Division.
(b) Determine the effect on overall company profits if the overseas division meets the outside supplier's price and sells the 5,000 widgets to the national division.