The crinkle-cut division of a French fry company had the following results last year with all production sold to outside customers: The crinkle-cut division has a 30,000 pound of processing capacity. If the crinkle-cut division were to transfer the remaining capacity to an internal division or unit, what would the minimum acceptable transfer price be?

Question

The crinkle-cut division of a French fry company had the following results last year with all production sold to outside customers:  The crinkle-cut division has a 30,000 pound of processing capacity. If the crinkle-cut division were to transfer the remaining capacity to an internal division or unit, what would the minimum acceptable transfer price be?

Quizplus · Accepted Answer

This question requires familiarity with how transfer pricing is calculated when a company has excess capacity. In the given scenario, the minimum acceptable transfer price would be variable cost per unit, which is Variable Expenses/Number of Units Produced = $4,000/25,000 = $0.16 per pound (Choice C).

The Crinkle-Cut Division of a French Fry Company Had the Following