Division A of Barsema, Inc. has operating data as follows: Capacity 20,000 units Selling price $80 per unit Variable costs $45 per unit Fixed costs $20 per unit Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A has capacity available to meet B's requirements, what is the minimum price it should charge

Question

Business

Iris Copeland

25 June, 01:02

Division A of Barsema, Inc. has operating data as follows: Capacity 20,000 units Selling price $80 per unit Variable costs $45 per unit Fixed costs $20 per unit Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A has capacity available to meet B's requirements, what is the minimum price it should charge

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Micah Barrera · Answer 1

the minimum price it should charge is $40 per unit.

Explanation:

Minimum Transfer Price = Variable Costs - Internal Savings + Opportunity Cost

Note : Division A has capacity available to meet B's requirements therefore there is no opportunity cost.

There are Internal savings of $5 as A's variable costs will be $5 less per unit.

Minimum Transfer Price = $45 - $5

= $40