Question

Chen Company's Small Motor Division manufactures a number of small motors used in household and office appliances. The Household Division of Chen then assembles and packages such items as blenders and juicers. Both divisions are free to buy and sell any of their components internally or externally. The following costs relate to small motor LN233 on a per unit basis. Fixed cost per unit $4.60 Variable cost per unit $11.00 Selling price per unit $34.15 Assuming that the Small Motor Division has excess capacity, compute the minimum acceptable price for the transfer of small motor LN233 to the Household Division. (Round answer to 2 decimal places, e.g. 10.50.)

Answer 1

$11

Step-by-step explanation:

The computation of the minimum acceptable price for the transfer of small motor is shown below:

Minimum acceptable price = Variable cost per unit + opportunity cost

where,

Variable cost per unit is $11

Opportunity cost is zero due to excess capacity

So in this case, the minimum accepted price is

= $0 + $11

= $11