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What should be the lowest acceptable transfer price

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Reference no: EM132898230

Question - Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:

Selling Price to Outside Customers $75

Variable Cost per Unit $50

Total Fixed Costs $400,000

Capacity in Units 25,000

Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division X?

Reference no: EM132898230

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