Joliet 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 $32 each. To make the product, Joliet incurs $7 of variable cost per unit and $12 of fixed costs per unit.
What is the minimum price Joliet would accept for an internal transfer of 1,000 units of the product if the division is operating at 100% capacity?
A) $ 7.00 each
B) $19.00 each
C) $32.00 each
D) $30.00 each

Question

Quizplus · Accepted Answer

At full capacity, the seller would accept nothing less than the current market price, which is equal to its variable cost plus opportunity cost.

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