The Alpha Division of a company, which is operating at capacity, produces and se

Question

The Alpha Division of a company, which is operating at capacity, produces and sells 500 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows:

The minimum transfer price that should be charged to the Beta Division of the same company for each component is:

A. $5

B. $15

C. $20

D. $25

The Alpha Division of a company, which is operating at capacity, produces and sells 500 units of a certain electronic component in a perfectly competitive market. Revenue and cost data are as follows:

Explanation / Answer

D. $25

Since it is a perfect market at full capacity, transfer price is the market price ie 12500/500 =25

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