a The Heating Division of Kobe International produces a heat

a) The Heating Division of Kobe International produces a heating element that it sells to its customers for $43 per unit. Its variable cost per unit is $29, and its fixed cost per unit is $10. Top management of Kobe International would like the Heating Division to transfer 15,000 heating units to another division within the company at a price of $33. The Heating Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept?

b) The Heating Division of Kobe International produces a heating element that it sells to its customers for $44 per unit. Its variable cost per unit is $29, and its fixed cost per unit is $11. Top management of Kobe International would like the Heating Division to transfer 14,800 heating units to another division within the company at a price of $27. The Heating Division is operating at full capacity. Assume that the units being requested are special high-performance units and that the division\'s variable cost would be $24 per unit (rather than $29). What is the minimum transfer price that the Heating Division should accept?

Minimum transfer price = ??

Solution

a Minimum transfer price = $43 b Minimum transfer price = 44-(29-24) = $39