Division A has a capacity of 2,000 units. Its sales and cost data are: Selling price per unit $100; Variable manufacturing costs per unit $25; Variable administrative costs per unit $5: Total fixed manufacturing overhead $20,000; Total fixed administrative costs $5,000. Division A is currently selling 1,800 units to outside customers, and Division B wants to purchase 500 units from A. If the transaction takes place, $2 of the variable administrative costs per unit transferred to B will be avoided. Division B is currently buying from an outside supplier at $80 per unit. What will be the increase on overall company profits if Internal sales take place at the optimum transfer price (the lowest acceptable transfer price by Division A)?
Division A has a capacity of 2,000 units. Its sales and cost data are: Selling price per unit $100; Variable
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