Question

Division X makes a part with the following characteristics:

Answer 1

Answer:

Amount to be lost= $60,000

Explanation:

The  Division X is operating at less than full capacity, hence it has excess capacity

This implies that it can produce enough to meet both the internal  and external buyers. In this situation, the minimum transfer will be

minimum transfer price= Variable cost= $11

If Division X refuses to accept $17, the company has a whole will lose

amount paid by Division Y to the external supplier in excess of $11 .

Amount to be lost = (17-11)× 10,000

                               = $60,000