Assuming that the Small Motor Division has excess capacity, compute the minimum
ID: 2385355 • Letter: A
Question
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.
Allied Company's Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Allied then assembles and packages such items as blenders and juicers. Both divisions arefree 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 5 Variable cost per unit 8 Selling price per unit 30Explanation / Answer
Calculating costs of production of small motor LN233 per unit
Fixed cost per unit
$5
Variable cost per unit
$8
Total cost of production
$13
Minimum acceptable price for the transfer of small motor LN233 to the Household Division
will be $13 per unit (at this price there will be no loss no profit)
Note:-
If they sell for $30 it means they are earning profit of ($30-$13) $17 per unit.
Calculating costs of production of small motor LN233 per unit
Fixed cost per unit
$5
Variable cost per unit
$8
Total cost of production
$13