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 is operating at 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 Quail would not sell for less than the market price if it is operating at capacity and could sell all its output at $12 on the open market.