Starcic Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:
The company has a Transmission Division that needs 6,000 special heavy-duty connectors per year. The Connector Division's variable cost to manufacture and ship this special connector would be $62 per unit. Making these special connectors would require more manufacturing resources. Therefore, the Connector Division would have to reduce its production and sales of regular connectors to outside customers from 45,000 units per year to 38,400 units per year.
Required:
As far as the Connector Division is concerned, what is the lowest acceptable transfer price for the special connectors?

Question

Starcic Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:
  The company has a Transmission Division that needs 6,000 special heavy-duty connectors per year. The Connector Division's variable cost to manufacture and ship this special connector would be $62 per unit. Making these special connectors would require more manufacturing resources. Therefore, the Connector Division would have to reduce its production and sales of regular connectors to outside customers from 45,000 units per year to 38,400 units per year.
Required:
As far as the Connector Division is concerned, what is the lowest acceptable transfer price for the special connectors?

Quizplus · Accepted Answer

The Answer of Starcic Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector. Data concerning that connector appear below:
  The company has a Transmission Division that needs 6,000 special heavy-duty connectors per year. The Connector Division's variable cost to manufacture and ship this special connector would be $62 per unit. Making these special connectors would require more manufacturing resources. Therefore, the Connector Division would have to reduce its production and sales of regular connectors to outside customers from 45,000 units per year to 38,400 units per year.
Required:
As far as the Connector Division is concerned, what is the lowest acceptable transfer price for the special connectors?