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Calculate the minimum transfer price

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Reference no: EM132572368

Question -

Fragrance Pty Ltd has two (2) divisions: the Cologne Division and the Bottle Division. The company is de-centralised and each division is evaluated as a profit centre.

The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division.

Using the general rule, calculate the minimum transfer price from the Bottle Division to the Cologne Division. Explain your answer.

Reference no: EM132572368

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