Back Brief Exercise 157 Freberg Company, a division of Dudge Cars, produces auto

Question

Back Brief Exercise 157 Freberg Company, a division of Dudge Cars, produces automotive batteries. Freberg sells the batteries to its customers for $92 per unit. The varlable cost per unit is $55, and fixed costs per unit are $16. Top management of Dudge Cars would like Freberg to transfer 30,000 special, high-performance batteries to another division within the company. Freberg's variable cost on these special batteries is $62 per unit. Freberg is operating at full capacity. Compute the minimum transfer price that Freberg should accept. Minimum transfer price s

Explanation / Answer

Contribution On Regular sales : 92 - 55 = $ 37 per unit

Since Freberg is operating at full capacity ,there will be a loss on contribution on regular sales if offer is accepted .Fixed cost remain constant within the range so it is irrelevant

Minimum Transfer price : variable cost of special batteries + contribution on regular sales

                  = 62 + 37

                 = $ 99 per unit

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