A company has two divisions: Division X and Division Y. Both divisions are profi

Question

A company has two divisions: Division X and Division Y. Both divisions are profit centres. Division X can produce up to 118256 kilograms of plastic per year. Division Y needs 42229 kilograms of plastic in order to manufacture different products. The market price is $6.33 per kilogram of plastic. The following costs pertain to Division X:

Variable manufacturing costs per kilogram

$3.49

Fixed manufacturing costs per kilogram

9.05

What is the minimum transfer price that Division X would be willing to receive for the 42229 kilograms sold to Division Y if Division X expects to have excess capacity this year?

Select one:

a. $12.54

b. $3.49

c. $6.33

d. $9.05

Variable manufacturing costs per kilogram

$3.49

Fixed manufacturing costs per kilogram

9.05

Explanation / Answer

Minimum transfer price will be the Variable manufacturing costs per kilogram $3.49 Option B is correct

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