The Alpha Division of a company, which is operating at capacity, produces and sells 1,000 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows: (CIA adapted)
$$\begin{array} { l r }
\text { Sales } & \$ 50,000 \
\text { Variable costs } & 34,000 \
\text { Fixed costs } & 12,000
\end{array}$$
The minimum transfer price that should be charged to the Beta Division of the same company for each component is:
A) $12.
B) $34.
C) $46.
D) $50.

Question

The Alpha Division of a company, which is operating at capacity, produces and sells 1,000 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows: (CIA adapted)
$$\begin{array} { l r } 
\text { Sales } & \$ 50,000 \
\text { Variable costs } & 34,000 \
\text { Fixed costs } & 12,000
\end{array}$$
The minimum transfer price that should be charged to the Beta Division of the same company for each component is:
A) $12.
B) $34.
C) $46.
D) $50.

Quizplus · Accepted Answer

The minimum transfer price in a perfectly competitive market where the division is operating at capacity is the market price, which is $50 per unit.

The Alpha Division of a Company, Which Is Operating at Capacity