The Can Division of Bonita Industries manufactures and sells

The Can Division of Bonita Industries manufactures and sells tin cans externally for $1.20 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 $0.03 a can.

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

Solution

Minimum transfer rate is the minimum rate, below which goods will not be sold.

Hence, here, minimum transfer price is $0.24