The Kelso Division produces and sells a product to external and internal customers. Per-unit information about its operations include: Selling price per unit to external customers $250
Variable manufacturing costs per unit 115
Fixed manufacturing overhead costs per unit 70
If Kelso has sufficient excess capacity to meet internal demand, what should be the transfer price for Kelso's product?

Question

Quizplus · Accepted Answer

The transfer price should be at least equal to the variable manufacturing costs per unit, which is $115, since Kelso has sufficient excess capacity and does not need to cover fixed costs in the transfer price.

The Kelso Division Produces and Sells a Product to External