Minimum Price & Transfer Price
of small motors used in household and office appliances. The Household Division
of Allied then assembles and packages such items as blenders and juicers. Both
divisions are free to buy and sell any of their components internally or
externally. The following costs relate to small
motor LN233 on a per unit basis.
Fixed cost per unit $ 5
Variable cost per unit 8
Selling price per unit 30
Instructions
(a) Assuming that the Small Motor Division has excess
capacity, compute the minimum acceptable price for the transfer of small motor
LN233 to the Household Division.
(b) Assuming that the Small Motor Division does not have
excess capacity, compute the minimum acceptable price for the transfer of the
small motor to the Household Division.
(c) Explain why the level of capacity in the Small Motor
Division has an effect on the transfer price
ScholarMatic: Explanation & Answer
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