Tinley Division has the capacity to make 1,500 units of an intermediate good that is sold both internally and on the open market for a price of $28 each. To make the product, Tinley incurs $6 of variable cost per unit and $12 of fixed costs per unit.
What is the minimum price Tinley would accept for an internal transfer of 1,000 units of the product if the division is operating at 50% capacity?
A) $ 6.00 per unit
B) $12.00 per unit
C) $28.00 per unit
D) $18.00 per unit

Question

Quizplus · Accepted Answer

The absolute minimum price that the seller would accept is its incremental cost of producing the product, which is the variable cost of $6 per unit.

Tinley Division Has the Capacity to Make 1,500 Units of an Intermediate