What is the lowest acceptable transfer price

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Question - Division A of XYZ Co. produces units that can either be sold to outside customers or transferred to XYZ's Division B. The following data are available from the last year:

Division A -

Production capacity in units 20,000

Selling price per unit to outside customers $25

Variable cost per unit $15

Total fixed production and selling costs $80,000

Division B -

Number of units needed annually 4,000

Price per unit paid to an outside supplier $18

Required - If the Division A can sell all 20,000 units annually to outside customers, what is the lowest acceptable transfer price from Division A's standpoint on each of the 4,000 units?

Reference no: EM132534255

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