Brief Exercise M-7 The Heating Division of Kobe International produces a heating

Question

Brief Exercise M-7

The Heating Division of Kobe International produces a heating element that it sells to its customers for $38 per unit. Its variable cost per unit is $23, and its fixed cost per unit is $8. Top management of Kobe International would like the Heating Division to transfer 15,400 heating units to another division within the company at a price of $31. The Heating Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept?

Minimum transfer price $

Explanation / Answer

Since the heating is operating at full capacity therefore minumum price would be variable cost + contribution to be lost.

Particulars Amt Material Cost          23.00 Add: Contribution to be lost
         (38 - 23)          15.00 Minimum Price          38.00

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