Reference no: EM132731743

Question - Minnesota Co. has two divisions: the electronics division and the sub-assembly division.

The electronics division manufactures circuit boards for electronic components. One of the parts it manufactures is circuit board CB136, which has a selling price of $40 per unit on the market. The part has a variable unit cost of $26 and a fixed cost of $8 per unit based on full use of capacity. Minnesota currently produces and sells 425,000 units of its 450,000-unit capacity to customers outside of the company.

The sub-assembly division manufactures electronic components used in automotive parts. One of its components, the SR20, includes a circuit board that is similar to the CB136. Currently, the division buys the circuit board from an outside supplier at a cost of $35 per unit. In the manufacture of the SR20, the sub-assembly division adds an additional $18 of variable costs per unit, applies $7 of fixed costs per unit and sells the completed component for $75. If a transfer took place between divisions, the sub-assembly division could use 100,000 units of part CB136.

Given that each division manager has decision autonomy, what is the minimum transfer price that the electronics division would be willing to accept for CB136?