Cruises, Inc., operates two divisions: (1) a management division that owns and m

Question

Cruises, Inc., operates two divisions: (1) a management division that owns and manages cruise ships in the Florida Keys and (2) a repair division that operates a dry dock in Marble Sand Florida. The repair division works on company ships, as well as other large-hull ships. The repair division has an estimated variable cost of $32.50 per labor-hour. The repair division has a backlog of work for outside ships. They charge $56.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $34.00 per hour, including leasing an adequate work area.

If the repair division had idle capacity, what is the minimum transfer price that the repair division should obtain?

Explanation / Answer

If repair division had idle capacity then minimum transter price will be incremental relevant cost.

minimum transfer price should be $ 32.50 per labor hour.

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