Rapid Industries has multiple divisions. One division, Iron Products, makes a co

Question

Rapid Industries has multiple divisions. One division, Iron Products, makes a component that another division, Austin, is currently purchasing on the open market. Iron Products currently has a capacity to produce 490,000 components at a variable cost of $5.50 and a full cost of $9.00. Iron Products has outside sales of 453,000 components at a price of $12.50 per unit. Austin currently purchases 45,000 units from an outside supplier at a price of $11.50 per unit. Assume that Austin desires to use a single supplier for its component

What will be the effect on Rapid Industries

What will be the effect on Rapid Industries

Explanation / Answer

a> Loss on purchase=45000*(11.50-12.50)=45000

b>minimum transfer price=full cost=9

c>maximum transfer price=Current Purchase Price=11.50

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