Venetian Corporation manufactures car stereos. It is a division of Berna Motors,

Question

Venetian Corporation manufactures car stereos. It is a division of Berna Motors, which manufactures vehicles. Venetian sells car stereos to Berna, as well as to other vehicle manufacturers and retail stores. The following information is available for Venetian's standard unit: variable cost per unit $35.07; fixed cost per unit $22.81; and selling price to outside customer $86.57. Berna currently purchases a standard unit from an outside supplier for $79.82. Because of quality concerns and to ensure a reliable supply, the top management of Berna has ordered Venetian to provide 203,000  units per year at a transfer price of $35.07  per unit. Venetian is already operating at full capacity. Venetian can avoid $3.93  per unit of variable selling costs by selling the unit internally. Answer each of the following questions.

What is the minimum transfer price that Venetian should accept

Explanation / Answer

For minimum transfer price, Venetian should be indifferent to selling internaly or externally

proift external= profit internal

203000*(86.57-35.07-22.81) = 203000*(m-35.07-22.81+3.93)

m= $82.64

minimum transfer price = 82.64

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