The Heating Division of Kobe International produces a heating element that it se

Question

The Heating Division of Kobe International produces a heating element that it sells to its customers for $45 per unit. Its variable cost per unit is $27, and its fixed cost per unit is $12. Top management of Kobe International would like the Heating Division to transfer 15,400 heating units to another division within the company at a price of $35. The Heating Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept? Minimum transfer prices

Explanation / Answer

Maximum Transfer Price acceptable by Heating Division = Variable Costs + Fixed Costs ( in order to maintain breakeven)

Hence, Maximum Transfer Price = $ 27 + $ 12 = $ 39

Minimum Transfer Price acceptable by the Heating Division would be a lower of the transfer price decided and the summation of Fixed and Variable Costs which comes to $ 20 + $ 12 = $ 32

Since $ 30 is the lower of the two, hence that should be the Minimum Transfer Price.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.