Division 1 of Ace Company makes and sells wheels that can either be sold to outside customers or transferred to Division 2. The following data are available from last month:

Division 1:

Division 2:

If Division 1 sells the wheels to Division 2, Division 1 can avoid $2 per unit in sales commissions.

-Suppose that Division 1 sells 7,500 units per month to outside customers. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division if Division 2 requires 5,000 units per month from Division 1?
A)$33 per unit
B)$35 per unit
C)$47 per unit
D)$50 per unit

Question

Division 1 of Ace Company makes and sells wheels that can either be sold to outside customers or transferred to Division 2. The following data are available from last month:

Division 1:

Division 2:

If Division 1 sells the wheels to Division 2, Division 1 can avoid $2 per unit in sales commissions.

-Suppose that Division 1 sells 7,500 units per month to outside customers. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division if Division 2 requires 5,000 units per month from Division 1?
A)$33 per unit 
B)$35 per unit 
C)$47 per unit 
D)$50 per unit

Quizplus · Accepted Answer

The lowest acceptable transfer price is the variable cost per unit, which is $33.

Division 1 of Ace Company Makes and Sells Wheels That