The fungal division needs 10,000 plates of potato dextrose agar annually. Currently, the fungal division purchases them from Arizona Lab Supplies for $25.00 for a unit of 10 plates because the media division has no excess capacity. However, recently the media division has lost a major customer and now has the capacity to provide the plates. What would be the minimum transfer price per sleeve of 10 plates?

Question

Business

Tripp Howe

19 September, 02:45

The fungal division needs 10,000 plates of potato dextrose agar annually. Currently, the fungal division purchases them from Arizona Lab Supplies for $25.00 for a unit of 10 plates because the media division has no excess capacity. However, recently the media division has lost a major customer and now has the capacity to provide the plates. What would be the minimum transfer price per sleeve of 10 plates?

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Answers (1)

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Marco Beasley · Answer 1

Answer: Greater than or equal to $25

Explanation:

Transfer price is the price at which products are sold between different departments of a firm.

The need for transfer price is borne out of the fact that some departments finished products are the raw materials for another

There is also the need for effective evaluation of the departments as a separate units.

Some Frm's usually gives there departments permission to sell at the prevailing market price considering the fact this is lowest price the buying department will be able to obtain it in the market.

In the example above the fungal division will only be able to obtain the product at the current market price of $25 which is the basis for this answer.