What is the minimum transfer price that the Engine Division should accept?

Swifty Corporation manufactures and sells high-priced motorcycles. The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division. It has been decided that the Engine Division will sell 23000 units to the Production Division at 1050 a unit. The Engine Division, currently operating at capacity, has a unit sales price of $2650 and unit variable costs and fixed costs of $1050 and $1600, respectively. The Production Division is currently paying $2500 per unit to an outside supplier. $110 per unit can be saved on internal sales from reduced selling expenses.

What is the minimum transfer price that the Engine Division should accept?

$1600

$2500

$2540

$2650

Expert Solution

$2540 is Correct Answer

Minimum Transfer Price Should be
Variable cost of Engine Division	$1,050.00
Contribution of Engine Division (2650-1050)	$1,600.00
Less: Saving in Selling Cost	-$110.00
Minimum Transer Price	$2,540.00

ekkarill92 answered 2 years ago

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