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 less than full 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 is its variable cost of $6 per gadget, especially if it is operating at less than full capacity. This is because any price above the variable cost would contribute to covering its fixed costs and potentially generating profit.