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Calculate the minimum transfer price from bottle division

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Reference no: EM132542679

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.

Question 1 : Using the general rule, calculate the minimum transfer price from the Bottle Division to the Cologne Division. Explain your answer

Reference no: EM132542679

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