Question

The Nelson Company's radio division currently is purchasing transistors from the Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's electronics division can produce the transistors for a cost of $4.00 each and they have plenty of capacity to manufacture the units. The $4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs. What should be the range of a possible transfer price?
A. $3.26 to $3.49

B. $3.51 to $3.99

C. $3.25 to $3.50

D $3.26 to $3.99

Answer 1

Answer:

The correct answer is C.

Explanation:

Giving the following information:

The Nelson Company's radio division currently is purchasing transistors from the Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's electronics division can produce the transistors for a cost of $4.00 each and they have plenty of capacity to manufacture the units. The $4 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs.

Because there is unused capacity, we will not have into account the fixed costs.

Unitary cost= $3.25

It is more convenient to produce in house. The indifference price is $3.50.