Division A of smith company has the capacity for making 3,000 motors per month a
ID: 2503048 • Letter: D
Question
Division A of smith company has the capacity for making 3,000 motors per month and regularly sells 1,950 motors each month to outside customers at a contribution margin of $62 per motor. The variable cost per motor is $35.70. division B of smith company would like to obtain 1,400 motors each month from Division A.A. What should be the lowest acceptable transfer price from the perspective of Division A? Division A of smith company has the capacity for making 3,000 motors per month and regularly sells 1,950 motors each month to outside customers at a contribution margin of $62 per motor. The variable cost per motor is $35.70. division B of smith company would like to obtain 1,400 motors each month from Division A.
A. What should be the lowest acceptable transfer price from the perspective of Division A?
Explanation / Answer
A. What should be the lowest acceptable transfer price from the perspective of Division A?
Upto 1050 Motor
Division A would acceptable transfer price = $ 35.70 per motor
after 1050 Motor
Division A would acceptable transfer price = $ 35.70 + 62 = $97.70 per motor
Avg lowest acceptable transfer price from the perspective of Division A for 1400 motor = (35.70*1050 + 97.70*350)/1400 = $ 51.20
Total transfer Price minimum required for 1400 motor = 35.70*1050 + 97.70*350 = $ 71,680
Answer:
A. What should be the lowest acceptable transfer price from the perspective of Division A?
$ 51.20