The Can Division of Fruit Products Inc.manufactures and sells tin cans externally for $0.60 per can.Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively.The Packaging Division wants to purchase 50,000 cans at $0.32 a can.Selling internally will save $0.02 a can.
-Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept?

Question

Quizplus · Accepted Answer

The minimum transfer price should cover the opportunity cost of selling externally, which is the external selling price minus the savings from selling internally: $0.60 - $0.02 = $0.58.