Estes Company has two operating divisions,A and B.The following information is provided for Division A: $\begin{array}{|l|lr|}
\hline \text { Unit selling price } & \$ & 350 \
\hline \text { Unit variable costs } & \$ & 200 \
\hline \text { Unit fived costs } & \$ & 70 \
\hline
\end{array}$ Division B uses the type of product produced by Division A and has approached Division A about buying the product internally.Division B is currently paying $300 to purchase the product from an outside source.If Division A sells internally it can save $10 per unit in variable costs.Assuming that Division A has sufficient excess capacity to produce all of the units requested by Division B,which of the following is the lowest price Division A should consider for the transfer?
A) $300
B) $190
C) $260
D) $250

Question

Quizplus · Accepted Answer

Division A should consider a transfer price of $190, which is the variable cost of $200 less the $10 per unit savings.

Estes Company Has Two Operating Divisions,A and B Division B Uses the Type of Product Produced by Division