Part AR3 costs the Southwestern Division of Luxon Corporation $26 to make-direct materials are $10, direct labor is $4, variable manufacturing overhead is $9, and fixed manufacturing overhead is
$3) Southwestern Division sells Part AR3 to other companies for $30. The Northeastern Division of Luxon Corporation can use Part AR3 in one of its products. The Southwestern Division has enough idle capacity to produce all of the units of Part AR3 that the Northeastern Division would require. What is the lowest transfer price at which the Southwestern Division should be willing to sell Part AR3 to the Northeastern Division?
A) $23
B) $27
C) $21
D) $26
E) $30

Question

Quizplus · Accepted Answer

The lowest transfer price at which the Southwestern Division should be willing to sell Part AR3 to the Northeastern Division is $23. This is because the Southwestern Division incurs a cost of $26 to make Part AR3, and it should not sell the part to the Northeastern Division for less than this amount.

Part AR3 Costs the Southwestern Division of Luxon Corporation $26