What is T-Bars minimum transfer price

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Question - Johnston Chemical Company's adhesive division requires 10,000 barrels of T-Bar per month and can purchase it from an outside supplier for $150 per barrel. Johnston's T-Bar unit has a capacity of 20,000 barrels per month and is presently selling that amount to outside buyers at $165 per barrel. The T-Bar unit's selling cost is $5 per barrel, and its variable cost of manufacturing is $90 per barrel.

1. From the standpoint of the company as a whole, should the adhesive unit purchase T-Bar inside or outside the firm? Show calculations to support your answers.

2. Based on your answer to 1, what is T-Bar's minimum transfer price?

3. How would your answers to questions 1 and 2 change if the T-Bar unit had a capacity of 30,000 barrels per month?

Reference no: EM132486200

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