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What the maximum transfer price

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Reference no: EM133002320

Question - Callahan Industries is a decentralized company that evaluates its divisions based on ROI. The Jones Division has the capacity to make 5 000 units of a component. The Jones Division's variable costs are R200 per unit.

The Thomas Division can use the component in one of its products. The Thomas Division would incur R100 of variable costs to put the component in its own product that sells for R500.

Assume the Jones Division can sell 4 000 units at R420. Any excess capacity will be unused unless the units are purchased by the Thomas Division, which could use up to 200 units. What the maximum transfer price that the Thomas Division would be willing to pay?

Reference no: EM133002320

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