Almond Delights is a farm that harvests almonds and then sells them to both external customers and to some internal business units when the deal makes fiscal sense. Almond Delights' Farm business unit is having a very successful year and provided the following information: The Almond Milk business unit of Almond Delights would like to purchase an additional 13,490 pounds of almonds from the Farm business unit. If Almond Delights Farm business unit is not operating at full capacity and has the ability to produce all of the additional units, then what will the minimum acceptable transfer price be to sell to the Almond Milk business unit?
A) $0.33 per pound
B) $0.69 per pound
C) $0.87 per pound
D) $1.56 per pound

Question

Almond Delights is a farm that harvests almonds and then sells them to both external customers and to some internal business units when the deal makes fiscal sense. Almond Delights' Farm business unit is having a very successful year and provided the following information:  The Almond Milk business unit of Almond Delights would like to purchase an additional 13,490 pounds of almonds from the Farm business unit. If Almond Delights Farm business unit is not operating at full capacity and has the ability to produce all of the additional units, then what will the minimum acceptable transfer price be to sell to the Almond Milk business unit?
A) $0.33 per pound 
B) $0.69 per pound 
C) $0.87 per pound 
D) $1.56 per pound

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 pounds of almonds harvested. Calculate the total variable costs which will be $15,460 + $39,245 + $60,732 = $115,437. Now, divide by the number of units sold externally. $115,437/167,300 pounds = $0.69 per pound. They could agree to sell for more, but this is the minimum amount needed to cover their expenses (Choice B).

Almond Delights Is a Farm That Harvests Almonds and Then