Question

The Heating Division of Kobe International produces a heating element that it sells to its customers for $48 per unit. Its variable cost per unit is $22, and its fixed cost per unit is $12. Top management of Kobe International would like the Heating Division to transfer 15,300 heating units to another division within the company at a price of $28. The Heating Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept

Answer 1

Answer:

$48

Explanation:

Calculation to determine the minimum transfer price that the Heating Division should accept

Using this formula

Min. transfer price=[VC/unit + (Lost USP - VC/unit)

Let plug in the formula

Min. transfer price=$22 + ($48 - $22)

Min. transfer price=$22+$26

Min. transfer price= $48

Therefore the minimum transfer price that the Heating Division should accept is $48