Retro Rides, Incorporated, operates two divisions: (1) a Management Division that owns and manages classic automobile rentals in Miami, Florida and (2) a Repair Division that restores classic automobiles in Clearwater, Florida. The Repair Division works on classic motorcycles, as well as other classic automobiles.
The Repair Division has an estimated variable cost of $28.50 per labor-hour and has a backlog of work for automobile restoration. They charge $48.00 per hour for labor, which is standard for this type of work. The Management Division complained that it could hire its own repair workers for $30.00 per hour, including leasing an adequate work area.
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If the Repair Division had idle capacity, what is the minimum transfer price that the Repair Division should obtain?
A) $28.50.
B) $30.00.
C) $39.00.
D) $46.50.

Question

Quizplus · Accepted Answer

The minimum transfer price when there is idle capacity should cover the variable cost, which is $28.50 per labor-hour.

Retro Rides, Incorporated, Operates Two Divisions: (1) a Management Division