The Can Division of Fruit Products Inc.manufactures and sells tin cans externally for $0.60 per can.Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively.The Packaging Division wants to purchase 50,000 cans at $0.32 a can.Selling internally will save $0.02 a can.
-Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept?
A)$0.24
B)$0.32
C)$0.22
D)$0.30

Question

Quizplus · Accepted Answer

The minimum transfer price should cover the variable cost minus any savings from selling internally. Thus, $0.24 (variable cost) - $0.02 (savings) = $0.22.