Nelson Company's Radio Division currently is purchasing transistors from Charlotte Co. for $3.50 each. The total number of transistors needed is 8,000 per month. Nelson Company's Electronics Division can produce the transistors for a cost of $4.00 each, and it has plenty of capacity to manufacture the units. The $4.00 is made up of $3.25 in variable costs, and $0.75 in allocated fixed costs. The range of a possible transfer price should be
A)$3.26 to $3.49
B)$3.51 to $3.99
C)$3.26 to $3.99
D)$3.25 to $3.50

Question

Quizplus · Accepted Answer

The transfer price should be between the variable cost of producing the transistors internally ($3.25) and the current purchase price from Charlotte Co. ($3.50).

Nelson Company's Radio Division Currently Is Purchasing Transistors from Charlotte