The Can Division of Bramble Corp manufactures and sells tin

The Can Division of Bramble Corp. manufactures and sells tin cans externally for $0.90 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.10, respectively. The Packaging Division wants to purchase 50,000 cans at $0.34 a can. Selling internally will save $0.08 a can.

Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept?

Solution

Answer:

the minimum transfer price it should accept=0.16

Working notes for the answer:

Calculation for the minimum transfer price

Unit variable costs

0.24

Less:

Selling internally will save Per can

0.08

Minimum transfer price

0.16

As it was given on the question that Can Division has sufficient capacity so fixed cost will not be chaged and we should consider the variable cost less saving on internal sale