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22 February, 01:23

Sandpiper Inc. has a division that manufactures a component that sells for $ 160 and has a variable cost of $ 35. Another division of the company wants to purchase the component. Fixed cost per unit of the component is $ 25. What is the minimum transfer price if the division is operating at capacity?

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  1. 22 February, 01:47
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    market price $160

    Explanation:

    The division is operating at capacity.

    This means is selling all the output to the market.

    So if the division purchase at a lower price than market, it will reduce the profit of the division.

    It this case the division minumin transfer price is the market price which is $160 Doing otherwise decrease the income of the company.
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Home » Business » Sandpiper Inc. has a division that manufactures a component that sells for $ 160 and has a variable cost of $ 35. Another division of the company wants to purchase the component. Fixed cost per unit of the component is $ 25.
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