Exercise 8-11 Chen Company\'s Small Motor Division manufactures a number of smal

Question

Exercise 8-11 Chen Company's Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Chen then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell any of their components internally or externally. The following costs relate to smal motor LN233 on a per unit basis. Fixed cost per unit Variable cost per unit $5.49 $11.08 $35.29 Selling price per unit Division. (Round answer to 2 decimal places, e.g. 10.50 Minimum transfer price per unit LINK TO TEXT VIDEO: SIMILAR EXERCISE Assuming that the Small Motor Division does not have excess capacity, compute the minimum acceptable price for the transfer of the small motor to the Household Division. (Round answer to 2 decimal places, e.g. 10.50.) Minimum transfer price s

Explanation / Answer

a) If division has excess capacity then minimum transfer price is variable cost

so minimum transfer price = 11.08 per unit

b) If division has not excess capacity then minimum transfer price is (variable cost+contribution margin to be lost)

Contribution margin to be lost = 35.29-11.08 =24.21

Minimum transfer price = 24.21+11.08 = 35.29

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