Raphael,Inc.has a division that manufactures a component that sells for $170 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $24.What is the minimum transfer price if the division is operating below its capacity?
A) $170
B) $50
C) $74
D) $24

Question

Quizplus · Accepted Answer

B) Since the division is operating below capacity, the transfer price should be set at or above the variable cost. The variable cost is the minimum that can be accepted.