The machining division of ITA International has a capacity of 2,330 units. Its s
ID: 2503837 • Letter: T
Question
The machining division of ITA International has a capacity of 2,330 units. Its sales and cost data are:
The machining division is currently selling 2,050 units to outside customers, and the assembly division of ITA International wants to purchase 560 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
$ 77 Variable manufacturing costs per unit
22 Variable selling costs per unit
7 Total fixed manufacturing overhead
213,300
Explanation / Answer
Total current profit = (P - TVC)*Q - TFC
P = 77
TVC = 22 + 7 = 29
TFC = TFC(M)-Machining division
Q = 2050
Total current profit = (77-29)*2150 - TFC (M)
In order to maintain the current profit with 0 variable selling costs the initial and final difference (P - TVC)*Q - TFC must be equal let X be new price then
X-VMC-VSC = 77-29
VMC = 22 , VSC = 0
X = 48 + 22 =$70
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.