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Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for $30. The Food Division sells the product to customers for $70 per unit. The Food Division's variable cost per unit is $35 and its fixed cost per unit is $10.
-If the Food Division has 10,000 units available capacity, what is the minimum transfer price the Food Division should accept?
A) $30
B) $35
C) $45
D) $70

Question

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Management of the Catering Company would like the Food Division to transfer 10,000 cans of its final product to the Restaurant Division for $30. The Food Division sells the product to customers for $70 per unit. The Food Division's variable cost per unit is $35 and its fixed cost per unit is $10.
-If the Food Division has 10,000 units available capacity, what is the minimum transfer price the Food Division should accept?
A) $30
B) $35
C) $45
D) $70

Quizplus · Accepted Answer

The minimum transfer price the Food Division should accept is its variable cost per unit, which is $35. This ensures that the division covers its variable costs associated with producing the product. Fixed costs are not considered in the transfer price since they are incurred regardless of the internal transfer.

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