The Molding Division of Cotwold Company manufactures a plastic casing used by th

Question

The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $35 per unit. Variable costs for the casing are $ 22 per unit and fixed cost is $5 per unit. Cotwold executives would like for the Molding Division to transfer 18,000 units to the Assembly Division at a price of $23 per unit. Assume that the Molding Division is operating at full capacity. Required: 1. Should it accept the transfer price proposed by management? Yes No 2. Identify the minimum transfer price that the Molding Division will accept. Minimum Price

Explanation / Answer

1. No

Moding Division is operating at full capacity. External market price is $35. Any reduction from 35 will affect the profitability of Molding Division.

2. Minimum Price is $35.

Moding Division is operating at full capacity. External market price is $35. So Molding Division will transfer with minimum price of $35

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