Dockside Enterprises Inc. ,operates two divisions: (1)a management division that owns and manages bulk carriers on the Great Lakes and (2)a repair division that operates a dry dock in Tampa,Florida.The repair division works on company ships,as well as other large-hull ships.The repair division has an estimated variable cost of $37 per labor-hour.The repair division has a backlog of work for outside ships.They charge $70.00 per hour for labor,which is standard for this type of work.The management division complained that it could hire its own repair workers for $45.00 per hour,including leasing an adequate work area.What is the minimum transfer price per hour that the repair division should obtain for its services,assuming it is operating at capacity?

Question

Quizplus · Accepted Answer

The minimum transfer price should be the opportunity cost of using the repair division's capacity, which is the price they could charge external customers, $70.00 per hour, since they are operating at full capacity.