The Saltine Cracker business unit of snack company called Salty Treatz, Inc. is selling all units produced to external customers. Salty Treatz has a processing capacity of 156,500 units for its saltine crackers. They have provided the following information: Due to an increase in sales of Party Platter division, an internal business unit of Salty Treatz, Party Platter would like to purchase 38,500 of the Saltine Cracker's product. If Saltine Cracker does an internal transfer of all additional capacity in units to Party Platter, what will the minimum acceptable transfer price be?
A) $0.13
B) $0.22
C) $0.29
D) $0.31

Question

The Saltine Cracker business unit of snack company called Salty Treatz, Inc. is selling all units produced to external customers. Salty Treatz has a processing capacity of 156,500 units for its saltine crackers. They have provided the following information:  Due to an increase in sales of Party Platter division, an internal business unit of Salty Treatz, Party Platter would like to purchase 38,500 of the Saltine Cracker's product. If Saltine Cracker does an internal transfer of all additional capacity in units to Party Platter, what will the minimum acceptable transfer price be?
A) $0.13 
B) $0.22 
C) $0.29 
D) $0.31

Quizplus · Accepted Answer

The minimum acceptable transfer price would be equal to its variable cost per unit. This will be calculated by dividing the variable expenses by the units of saltine units produced. $34,400/118,000 = $0.29 per unit. They could agree to sell for more, but this is the amount needed to cover their expenses (Choice C).

The Saltine Cracker Business Unit of Snack Company Called Salty