Holiday Corp.has two divisions,Quail and Marlin.Quail produces a widget that Marlin could use in its production.Quail's variable costs are $4 per widget while the full cost is $7.Widgets sell on the open market for $12 each.If Quail has excess capacity,what would be the maximum transfer price if Marlin currently is purchasing 100,000 units on the open market?
A)$4.00
B)$5.00
C)$7.00
D)$12.00

Question

Quizplus · Accepted Answer

The maximum transfer price would be the market price of $12, as this is what Marlin would have to pay if they were to purchase the widgets on the open market. Since Quail has excess capacity, selling to Marlin at the market price would not incur additional costs beyond the variable cost of $4, making $12 the upper limit for the transfer price.