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The Heating Division of Kobe International produces a heating element that It sells to its customers for $38 per unit
The Heating Division of Kobe International produces a heating element that It sells to its customers for $38 per unit. Its.mariable cost per unit is 521, and Its fixed cost per unit Is $9. Top management i of Kobe International would like the Heating Division to transfer 14,600 heating units to another division within the company at a price of $25. Assume that the Heating Division has sufficient excess capacity to provide the 14,600 heating units to the other division. What is the minimum transfer price that the Heating Division should accept? Minimum transfer price $
Expert Solution
Computation of Minimum Transfer Price:
Minimum Transfer Price = Variable Cost + Opportunity Cost
Since the heating division has sufficient excess capacity to provide the required units, there is no opportunity cost of transferring the heating element.
Minimum transfer price = Variable cost per unit = $21
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