Question

Peppertree Company has two divisions, East and West. Division East manufactures a component that Division West uses. The variable cost to produce this component is $1.45 per unit; full cost is $1.91. The component sells on the open market for $4.95. (Enter your answers in 2 decimal places.)Assuming Division East has excess capacity, what is the lowest price Division East will accept for the component?

Answer 1

Answer:

$1.45

Explanation:

Data provided in the question

Variable cost per component = $1.45

Full cost = $1.91

Selling price per component = $4.95

By considering the above information, the lowest price that would be accepted for the component is equal to the variable cost per unit i.e $1.91 and plus the full cost includes both the variable and fixed cost plus the fixed cost would be recovered by normal sale also

So in this case we only considered the variable cost per component