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What is the minimum transfer price that will maximize corporate profits?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter11: Performance Evaluation And Decentralization

Section: Chapter Questions

Problem 16BEA

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Concept explainers

Management by Exception

A manager’s job is a very tough one. A manager needs to look at the various areas of work and as a manager he has to look after two or more important jobs or activities at the same time for the growth of the business. In order to do all these things in an effective manner, a manager must adopt or practice different management styles and tactics.

Question

100%

Pharoah Industries produces and sells electronic sound equipment. The company has production capacity of 20600 units and currently production schedule is for 18600 units. Each unit has a selling price of $25, variable product cost of $15, and variable selling cost of $2. Another division wishes to purchase 560 units. If Pharoah sells the units to the other division, it will avoid $1 of the variable selling costs. What is the minimum transfer price that will maximize corporate profits?

$25

$15

$17

$16

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