Question

The Wood Division of Bramble Corp. manufactures rubber moldings and sells them externally for $45. Its variable cost is $25 per unit, and its fixed cost per unit is $9. Bramble’s president wants the Wood Division to transfer 4500 units to another company division at a price of $26.Assuming the Wood Division does not have any available capacity, the minimum transfer price it should accept is a.$25.b. $26c. $45d. $9

Answer 1

Answer:

a.$25.

Explanation:

The cost element of the company is divided into fixed and variable cost. while the fixed cost is unavoidable, the variable cost can be controlled. The transfer price is the price at which an item may be transferred or "sold" internally between to units within an organization.

For a division or unit to transfer a unit to another, the minimum transfer price is the variable cost.

Once the item is transferred at the variable cost, the contribution of that product internally is zero and the receiving division may then sell externally generating the actual sale and profit for the entire business.

Answer 2

Answer:

c. $45

Explanation:

Transfer price is the price charged for a product which is transferred to other department/ division / subsidiary of same company / group. The minimum selling price in the absence of any excess capacity is the price available in the market, because the company has demand for the product and it does not lost the sale if transfer not takes place. The product can be sold in the market. So the Transfer price should be $45.