1. Assuming sufficient capacity, what is the minimum acceptable transfer price to Division A? 2. Assuming only 22,500 excess capacity, what is the minimum acceptable transfer price to Division A? 3. Assuming no excess capacity, what is the minimum acceptable transfer price to Division A? 4. What is the maximum acceptable transfer price to Division B?
Division A has the capacity to produce 120,000 units. The normal selling price of each unit is P80. The variable cost incurred for each unit is P42. Total direct fixed cost for the relevant range is P1,150,000. Division B can use the products of Division A as an input in its manufacturing process but is currently acquiring the said products from an outside supplier. The price per unit is P75. Total annual demand is 30,000 units.
1. Assuming sufficient capacity, what is the minimum acceptable transfer price to Division A?
2. Assuming only 22,500 excess capacity, what is the minimum acceptable transfer price to Division A?
3. Assuming no excess capacity, what is the minimum acceptable transfer price to Division A?
4. What is the maximum acceptable transfer price to Division B?
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