Exercise M-11 (Part Level Submission) (a) Open Show Work Exercise M-11 (Part Lev

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Exercise M-11 (Part Level Submission)

(a)

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Exercise M-11 (Part Level Submission)

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 small motor LN233 on a per unit basis.
Fixed cost per unit $4.50 Variable cost per unit $10.50 Selling price per unit $34.00

(a)

Assuming that the Small Motor Division has excess capacity, compute the minimum acceptable price for the transfer of small motor LN233 to the Household Division. (Round answer to 2 decimal places, e.g. 10.50.)
Minimum transfer price $

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Explanation / Answer

Minimum transfer price = Variable cost + opportunity cost

Since the Small Motor Division has excess capacity, the minimum transfer price is the variable cost of $10.50 per unit.

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