Edwards Company has two operating divisions, A and B. The following information

Question

Edwards Company has two operating divisions, A and B. The following information is provided for Division A:

Unit selling price

$167

Unit variable costs

$117

Unit fixed costs

$ 37


Division B uses the type of product produced by Division A and has approached Division A about buying the product internally. Division B is currently paying $162 to purchase the product from an outside source. If Division A sells internally it can save $18.5 per unit in variable costs. Assuming that Division A has sufficient excess capacity to produce all of the units requested by Division B, which of the following is the lowest price Division A should consider for the transfer?
$117.00

$148.50

$162.00

$98.50

Explanation / Answer

lowest price Division A should consider for the transfer = net variable cost = =$117 - $18.5= $98.50

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