Spring Corp.has two divisions,Daffodil and Tulip.Daffodil produces a gadget that Tulip could use in its production.Tulip currently purchases 100,000 gadgets for $12.50 on the open market.Daffodil's variable costs are $6 per widget while the full cost is $9.35.Daffodil sells gadgets for $13 each.If Daffodil is operating at capacity,what would be the minimum transfer price Daffodil would accept for an internal transfer?
A)$6.00
B)$9.35
C)$12.50
D)$13.00

Question

Quizplus · Accepted Answer

The minimum transfer price Daffodil would accept for an internal transfer, given that it is operating at capacity, is the price it sells the gadgets for on the open market, which is $13.00. This is because selling internally at a price lower than $13.00 would mean forgoing the higher revenue they could earn by selling externally at full capacity.