Brief Exercise 22-8 XYour answer is incorrect. Try again. The Heating Division o

Question

Brief Exercise 22-8 XYour answer is incorrect. Try again. The Heating Division of KLM International produces a heating element that it sells to its customers for $39 per unit. Its variable cost per unit is $18, and its fixed cost per unit is $5 Top management of KLM International would like the Heating Division to transfer 15,000 heating units to another division within the company at a price of $32. Assume that the Heating Division has sufficient excess capacity to provide the 15,000 heating units to the other division. What is the minimum transfer price that the Heating Division should accept? Minimum transfer price

Explanation / Answer

As the Heating division has excess capacity, the relevant cost will be the variable cost per unit. So the minimum transfer price will be equal to the variable cost per unit Minimum transfer price = $18

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