The Engine Division of the Taylor Corporation sells small engines to the outside

Question

The Engine Division of the Taylor Corporation sells small engines to the outside market at a selling price of $150.98 per engine. The Engine Division is currently operating at a capacity of 47677 engines per year and is currently selling 35522 engines annually. The Snowmobile Division of the Taylor Corporation currently purchases 24325 engines from an external supplier at a cost of $143.05 per engine. The variable cost of producing an engine is $90.75. In computing a transfer price per motor using the transfer pricing formula, the lost contribution margin per unit portion of the minimum transfer price computation would be:

Select one:

a. $120.88

b. $30.13

c. $52.30

d. $60.23

Explanation / Answer

Total external unit sales lost=35522-(47677-24325)= 12170 Total lost contribution margin = 12170*(150.98-90.75)= $733000 Lost contribution margin per unit=733000/24325= $30.13 Option B is correct

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