Question

The Southern Division of Barstol Company makes and sells a single product, which is a part used in manufacturing trucks. The annual production capacity is 12,000 units and the variable cost of each unit is $35. Presently the Southern Division sells 11,000 units per year to outside customers at $49 per unit. The Northern Division of Barstol Company would like to buy 4,000 units a year from Southern to use in its production. There would be no savings in variable costs from transferring the units internally rather than selling them externally. The lowest acceptable transfer price from the standpoint of the Southern Division should be closest to

Answer 1

Answer:

The lowest acceptable transfer price from the standpoint of the Southern Division should be closest to $45.5 per unit

Explanation:

The annual production capacity of The Southern Division is 12,000 units. The Southern Division sells 11,000 units per year to outside customers at $49 per unit.

Therefore, the Southern Division can produce 1,000 units more.

There would be no savings in variable costs from transferring the units internally rather than selling them externally.

The lowest acceptable transfer price from the standpoint of the Southern Division = (1,000 x $35 + 3,000 x $49)/4,000 = $45.5 per unit