Selling price per unit (on the outside market) $ 75 Variable cost per unit $ 59 Fixed costs per unit (based on capacity) $ 4 Capacity in units 20,000 Division B could use Division A’s product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes. If that the
Assume a company has two divisions, Division A and Division B. Division A has provided the following information regarding the one product that it manufactures and sells on the outside market:
| Selling price per unit (on the outside market) | $ 75 |
|---|---|
| Variable cost per unit | $ 59 |
| Fixed costs per unit (based on capacity) | $ 4 |
| Capacity in units | 20,000 |
Division B could use Division A’s product as a component part in the manufacture of 4,000 units of its own newly-designed product. Division B has received a quote of $58 from an outside supplier for a component part that is comparable to the one that Division A makes.
If that the company’s divisional managers are evaluated based their division’s profits and Division A is currently selling 20,000 units on the outside market, what is lowest acceptable transfer price for Division A if it were to sell 4,000 units to Division B?
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$79
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$75
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$73
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$71
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