The Hinges Division of Altoona Corp.sells 80,000 units of part Z-25 to the outside market.Part Z-25 sells for $40,has a variable cost of $22,and a fixed cost per unit of $10.The Hinges Division has a capacity to produce 100,000 units per period.The Door Division currently purchases 10,000 units of part Z-25 from the Hinges Division for $40.The Door Division has been approached by an outside supplier willing to supply the parts for $36.If Altoona uses a negotiated transfer pricing system,what is the minimum transfer price that should be charged for this transaction?

Question

Quizplus · Accepted Answer

The minimum transfer price should cover the variable cost, which is $22, as the Hinges Division has excess capacity and no opportunity cost from selling internally.