Tuttle Motorcycles Inc.manufactures and sells high-priced motorcycles.The Engine Division produces and sells engines to other motorcycle companies and internally to the Production Division.It has been decided that the Engine Division will sell 20,000 units to the Production Division at $1,050 a unit.The Engine Division, currently operating at capacity, has a unit sales price of $2,550 and unit variable costs and fixed costs of $1,050 and $750, respectively.The Production Division is currently paying $2,400 per unit to an outside supplier.$90 per unit can be saved on internal sales from reduced selling expenses.
-What is the minimum transfer price that the Engine Division should accept?

Question

Quizplus · Accepted Answer

The minimum transfer price that the Engine Division should accept is $2,460. This is because the Production Division is currently paying $2,400 per unit to an outside supplier, and the Engine Division can save $90 per unit on internal sales from reduced selling expenses. Therefore, the minimum transfer price that the Engine Division should accept is $2,400 + $90 = $2,460.