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24 January, 09:15

Division A of Barsema, Inc. has operating data as follows: Capacity 20,000 units Selling price $80 per unit Variable costs $45 per unit Fixed costs $20 per unit Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit. If Division A has capacity available to meet B's requirements, what is the minimum price it should charge

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  1. 24 January, 09:50
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    the minimum price it should charge is $40 per unit.

    Explanation:

    Minimum Transfer Price = Variable Costs - Internal Savings + Opportunity Cost

    Note : Division A has capacity available to meet B's requirements therefore there is no opportunity cost.

    There are Internal savings of $5 as A's variable costs will be $5 less per unit.

    Minimum Transfer Price = $45 - $5

    = $40
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