Question

Division A produces a product that it sells to the outside market. It has compiled the following:

Variable manufacturing cost per unit	$8
Variable selling costs per unit	$3
Total fixed manufacturing costs	$140000
Total fixed selling costs	$30000
Per unit selling price to outside buyers	$47
Capacity in units per year	30000

1.

i)

Division B of the same company is currently buying an identical product from an outside provider for $45 per unit. It wishes to purchase 4000 units per year from Division A. Division A is currently selling 30000 units of the product per year. If the internal transfer is made, Division A will not incur any selling costs. What would be the minimum transfer price per unit that Division A would be willing to accept?

A)8

B) 9

c)45

d)47

ii)

The first step in the absorption-cost approach is to calculate the markup percentage used in setting the target selling price.

T/F ?

Answer 1