A company has two divisions: Division X and Division Y. Both divisions are profi

Question

A company has two divisions: Division X and Division Y. Both divisions are profit centres. Division X can produce up to 139966 kilograms of plastic per year. Division Y needs 43541 kilograms of plastic in order to manufacture different products. The market price is $5.58 per kilogram of plastic. The following costs pertain to Division X:

Variable manufacturing costs per kilogram

$3.53

Fixed manufacturing costs per kilogram

8.80

What is the minimum transfer price that Division X would be willing to receive for the 43541 kilograms sold to Division Y if Division X expects to be operating at full capacity this year?

Select one:

a. $12.33

b. $5.58

c. $8.80

d. $3.53

Variable manufacturing costs per kilogram

$3.53

Fixed manufacturing costs per kilogram

8.80

Explanation / Answer

Answer : a. $12.33

=> As the Division X is expected to operate at full capacity during the year, so the minimum transfer price expected to received by Division X would be combination of Variable and Fixed manufacturing costs, otherwise the department and the company would be in loss.

so, the minimum transfer price = $3.53 + $8.80 = $12.33 per kilogram

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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