The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The following data are available for last year's activities of the Post Division: Capacity in units. Selling price per post to outside customers Variable costs per post. Fixed costs, total...... ****** 300,000 posts $1.75 $0.90 $150,000 The total fixed costs would be the same for all the alternatives considered below. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Post Division?
The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The following data are available for last year's activities of the Post Division: Capacity in units. Selling price per post to outside customers Variable costs per post. Fixed costs, total...... ****** 300,000 posts $1.75 $0.90 $150,000 The total fixed costs would be the same for all the alternatives considered below. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Post Division?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Post Division of the M.T. Woodhead Company produces basic posts which can be sold
to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last
year the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The
following data are available for last year's activities of the Post Division:
Capacity in units.
Selling price per post to outside customers
Variable costs per post.
Fixed costs, total......
******
300,000 posts
$1.75
$0.90
$150,000
The total fixed costs would be the same for all the alternatives considered below.
Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by
15,000 units. What is the lowest transfer price that would not reduce the profits of the
Post Division?
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