Collyer Products has a valve division that manufactures and sells a standard val
ID: 2389940 • Letter: C
Question
Collyer Products has a valve division that manufactures and sells a standard valve. Information about the valve division is as follows:Capacity of valve division factory, in units 100,000 units
Selling price to customers $30 per unit
Variable cost per unit $16 per unit
Fixed cost per unit, at full factory capacity $ 9 per unit
The company has a pump division that could use this valve in the manufacture of one its pumps. The pump division is currently purchasing 10,000 of these valves per year from an overseas supplier at a cost of $29 per valve.
1) Assume that the valve division has enough capacity to handle all of the pump division
Explanation / Answer
1) Transfer price when there is excess capacity = variable cost =$16 per unit 2)Transfer price when there is no excess capacity = price = $30 per unit 3)transfer price between the two divisions =price - reduction in variable cost = 30-3= $27