Division A of Sebastian Enterprises manufactures a product called XYZ. Current d
ID: 2557118 • Letter: D
Question
Division A of Sebastian Enterprises manufactures a product called XYZ. Current data for Division A are as follows:
Capacity
62350
Current production & sales
Per unit data
Selling price
$90.99
Variable costs - production
33.42
Variable costs – marketing relating to external sales
14.33
Fixed costs (total)
$766047
Division B of Sebastian Enterprises currently buys 22531 units of XYZ yearly from an outside supplier at a price of $55.00. Division B would like to buy the 22531 units of XYZ it needs annually from Division A.
What is the minimum transfer price?
Select one:
a. $44.23
b. $62.86
c. $33.42
d. $48.53
Capacity
62350
Current production & sales
47691Explanation / Answer
The general economic transfer price rule is that minimum transfer price must be greater than or equal to marginal cost of selling division.In other word we can say transfer price must be equal to marginal cost which is also called variable cost. ... Because fixed cost is sunk cost in decision making of transfer price.
So answer is $ 33.42 which is production cost of division
Option C.33.42 is correct option.