The Post Division of the M.T. Woodhead Company produces basic posts which can be

Question

The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 32,800 posts from Post at $1.20 each. The following data are available for last year's activities of the Post Division:

Capacity in units 320,000 posts
Selling price per cost to outside customers $2.14
Variable costs per post $1.06
Fixed costs, total $249,000

The total fixed costs would be the same for all the alternatives considered below. Suppose there is ample capacity so that transfers of the posts to the Lamp Division do not cut into sales to outside customers. What is the lowest transfer price that would not reduce the profits of the Post Division?
$2.14
$1.51
$1.57
$1.06

Explanation / Answer

lowest transfer price that would not reduce the profits of the Post Division = Variable costs per post =$1.06 Answer $1.06

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