Question 31 The machining division of ITA International has a capacity of 2,480

Question

Question 31

The machining division of ITA International has a capacity of 2,480 units. Its sales and cost data are:

Question 31

The machining division of ITA International has a capacity of 2,480 units. Its sales and cost data are:

Selling price per unit $ 85 Variable manufacturing costs per unit 30 Variable selling costs per unit 7 Total fixed manufacturing overhead 213,700

The machining division is currently selling 2,350 units to outside customers, and the assembly division of ITA International wants to purchase 420 units from machining. If the transaction takes place, the variable selling costs per unit on the units transferred to assembly will be $0/unit, and not $7/unit. What should be the transfer price in order not to affect the machining division’s current profit? (Round answer to 2 decimal places e.g. 5.25.)
Minimum transfer price $

Explanation / Answer

Total Capacity                 2,480 Sold to outside customer                 2,350 Free capacity                     130 Requirement from Assembly line                     420 Rduction in current sale to existing customers                     290 Calculation of relevant cost Description From existing customers Selling price                       85 Variable cost                     (30) Variable selling cost                       (7) Contribution                       48 Calculation of relevant cost Description Free capacity Existing customer Variable cost                       30                                               30 Contribution lost                        -                                                 48 Relevant cost                       30                                               78

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.