Question

Division P of the Nyers Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Annual production capacity................................... 200,000 units Selling price of the item to outside customers...... $68 Variable cost per unit............................................. $24 Fixed cost per unit................................................. $35 Division Q of the Nyers Company requires 40,000 units per year. Consider each part below independently.

1) If outside customers demand 190,000 units per year, what is the number of “lost units”? 2) If outside customers demand 190,000 units per year, what is the lowest acceptable transfer price from the viewpoint of the selling division (the floor)?

3) If outside customers demand 170,000 units per year, what is the number of “lost units”?

4) If outside customers demand 170,000 units per year, what is the lowest acceptable transfer price from the viewpoint of the selling division (the floor)?

Answer 1

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