Brief Exercise 22-9 Your answer is incorrect. Try again The Heating Division of

Question

Brief Exercise 22-9 Your answer is incorrect. Try again The Heating Division of KLM International produces a heating element that it sells to its customers fo 46 per unit. Its variable cost per unit is S18 and its fixed cost per unit is 7. Top management o KLM International ould like the Heating Division to transfer 14, 80 heating units to another division within the company at a price of 25. The Heating D vision is operating at full capacity. Assume that the units being equested are spec hi h perfo ance units, and that the d visions variab e cost ould be $25 per unit. What is the minimum transfer price that the Heating Division should accept? nance units, the dvison's va Divisian is Minimum transfer

Explanation / Answer

Minium transfer price for transferor division is Variable cost if transferor division has spare capacity and if transferor division has operating full capacity then minimum transfer price is (Variable cost+contribution to be lost)

In this question

Minimum transfer price = Variable cost+contribution to be lost

                                  = 25+(46-18)

Minimum transfer price = 53

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