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Managerial Accounting

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Moderate

Setting a Transfer Price

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The following data pertains to Division A of Manley Company:

Selling price to outside customers -- \$50
Variable cost per unit -- \$38
Total fixed costs -- \$22,000
Capacity -- 15,000 units

Division A is selling all it can produce to outside customers. If it sells to Division B, \$1 can be avoided in variable cost per unit. Division B is presently purchasing from an outside supplier at \$48 per unit.

From the point of view of Division A, any transfers to Division B should have a price of at least:

A

$49

B

$50

C

$38

D

$48