Your answer is incorrect. Try again. The Heating Division of Kobe International

Question

Your answer is incorrect. Try again. The Heating Division of Kobe International produces a heating element that it sells to its customers for $38 per unit. Its variable cost per unit is $20, 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 $30 Assume that the Heating Division has sufficient excess capacity to provide the 15,400 heating units to the other division. What is the minimum transfer price that the Heating Division should accept? Minimum transfer price 38

Explanation / Answer

Minimum transfer price

= Variable costs incurred + Opportunity cost of providing

Opportunity cost is the amount foregone by an organization to take another job. Since in the present case the organization has excess capacity, there is no opportunity cost

So, Minimum transfer price

= Variable costs

= $20

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