Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market). Variable cost per unit $ 60 $ 44 Fixed costs per unit (based on capacity) Capacity in units $ 4 20,000 Division B could use Division A's product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes. If the company's divisional managers are evaluated based their division's profits and Division A is currently selling 18,000 units on the outside market, what is Division A's lowest acceptable transfer price if it were to sell 4,000 units to Division B?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it
manufactures and sells on the outside market:
Selling price per unit (on the outside market).
Variable cost per unit
$ 60
$ 44
Fixed costs per unit (based on capacity)
Capacity in units
$ 4
20,000
Division B could use Division A's product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has
received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes.
If the company's divisional managers are evaluated based their division's profits and Division A is currently selling 18,000 units on the outside market,
what is Division A's lowest acceptable transfer price if it were to sell 4,000 units to Division B?
Transcribed Image Text:Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market: Selling price per unit (on the outside market). Variable cost per unit $ 60 $ 44 Fixed costs per unit (based on capacity) Capacity in units $ 4 20,000 Division B could use Division A's product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes. If the company's divisional managers are evaluated based their division's profits and Division A is currently selling 18,000 units on the outside market, what is Division A's lowest acceptable transfer price if it were to sell 4,000 units to Division B?
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