CALCULATOR FULL SCREEN PRINTER VERSION BACK Brief Exercise 8-7 The Heating Divis

Question

CALCULATOR FULL SCREEN PRINTER VERSION BACK Brief Exercise 8-7 The Heating Division of Kobe International produces a heating element that it sells to its customers for $45 per unit. It variable cost per unit is $24, and its fixed cost per unit is $6. Top management of Kobe International would like the Heating Division to transfer 15,200 heating units to another division within the company at a price of $30. The Heatirg Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept? Minimum transfer price s

Explanation / Answer

Answer:

Calculation of minimum transfer price that the Heating Division should accept for transfer the heating unit to another division:

*Heating division is operating at full capacity :

Variable cost $24

Add:

Opportunity cost $21

($45-$24)

Minimum Tranfer price $45

Note: Since heating division operating at full capacity, their is no spare capacity in Heating Division . So Heating division transfer the the heating unit to another division at Variable cost plush Opportunity cost i.e.$45

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