Reference no: EM131784291

Problem

Minnesota Co. has two divisions: the electronics division and the sub-assembly division.The Electronics Division manufactures circuit boards for electronic components. One ofthe parts it manufactures is circuit board CB136, which has a selling price of $40 per uniton the market. The part has a variable unit cost of $26 and a fixed cost of $8 per unitbased on full use of capacity. Minnesota is currently producing and selling 425,000 units ofits 450,000-unit capacity to customers outside of Minnesota Co.

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 perunit. In the manufacture of SR20, the sub-assembly division adds an additional $18 ofvariable costs per unit, applies $7 of fixed costs per unit and sells the completedcomponent for $75. If a transfer took place between divisions, the sub-assembly divisioncould use 100,000 units of part CB136.

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