Handout 1 - Meta Company Mela Company has 2 divisions. The Tyre Division transfe
ID: 2423481 • Letter: H
Question
Handout 1 - Meta Company Mela Company has 2 divisions. The Tyre Division transfers partially completed components to the Assembly Division at a predetermined transfer price. The Tyre Division's standard variable production cost per unit is $25. The Tyre Division has no excess production capacity and it could sell all its components to outside buyers at $30 per unit in a perfectly competitive market. Required: a) Determine the minimum transfer price acceptable to the Tyre Division. b) How would the minimum transfer price change if the Tyre Division has excess production capacity?Explanation / Answer
a) minimum transfer price = $25
variable cost, because selling price is $30 ,from where this division can recover the cost incurred in the production , and no profit - no loss(break even point) situation will be arised.
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