Question

Sandpiper Inc. has a division that manufactures a component that sells for $ 160 and has a variable cost of $ 35. Another division of the company wants to purchase the component. Fixed cost per unit of the component is $ 25. What is the minimum transfer price if the division is operating at​ capacity?

Answer 1

market price $160

Step-by-step explanation:

The division is operating at capacity.

This means is selling all the output to the market.

So if the division purchase at a lower price than market, it will reduce the profit of the division.

It this case the division minumin transfer price is the market price which is $160 Doing otherwise decrease the income of the company.