Exercise 8-13 Benson Corporation manufactures car stereos. It is a division of B

Question

Exercise 8-13

Benson Corporation manufactures car stereos. It is a division of Berna Motors, which manufactures vehicles. Benson sells car stereos to Berna, as well as to other vehicle manufacturers and retail stores. The following information is available for Benson's standard unit: variable cost per unit $37, fixed cost per unit $23, and selling price to outside customer $86. Berna currently purchases a standard unit from an outside supplier for $80. Because of quality concerns and to ensure a reliable supply, the top management of Berna has ordered Benson to provide 200,000 units per year at a transfer price of $35 per unit. Benson is already operating at full capacity. Benson can avoid $3 per unit of variable selling costs by selling the unit internally.

Answer each of the following questions.

What is the minimum transfer price that Benson should accept? (Round answer to 2 decimal places, e.g. 10.50.)

What is the potential loss to the corporation as a whole resulting from this forced transfer? (Round answer to 0 decimal places, e.g. 125.)

Explanation / Answer

Hope this helps

Variable Price $         37 Varabile cost which can be avoided by transfer internally $           3 Sales to external parites $         86 Contribution = sales - variable cost $         49 Minimum Transfer Pricing = (Variable Price - Avoidable variable cost) + Oportunity cost
Opportunity cost = Sales to the external parties - variable cost (37 - 3) +( 86 - 37) $         83

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