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The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.02 a can.
-Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?
A)$0.58
B)$0.66
C)$0.28
D)$0.34

Question

Use the following information for questions 
The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.02 a can.
-Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?
A)$0.58
B)$0.66
C)$0.28
D)$0.34

Quizplus · Accepted Answer

The Can Division should accept a transfer price that is at least equal to its external selling price of $0.60 per can, minus the savings from internal selling, which is $0.02 per can. This results in a minimum transfer price of $0.58 per can ($0.60 - $0.02). Therefore, the answer is (A) $0.58.

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