The Red River Division of Alto Company produces and sells bags of pottery clay which can either be sold to outside customers or transferred to the White Mountain Division of Alto Company. The following data are available for the last year:

By selling to the White Mountain Division, the Red River Division will avoid $3 per bag in selling costs.
-If Red River can sell only 10,000 bags annually to outside customers, according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A)$20 per bag
B)$16 per bag
C)$11 per bag
D)$14 per bag

Question

The Red River Division of Alto Company produces and sells bags of pottery clay which can either be sold to outside customers or transferred to the White Mountain Division of Alto Company. The following data are available for the last year:

By selling to the White Mountain Division, the Red River Division will avoid $3 per bag in selling costs.
-If Red River can sell only 10,000 bags annually to outside customers, according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?
A)$20 per bag 
B)$16 per bag 
C)$11 per bag 
D)$14 per bag

Quizplus · Accepted Answer

The lowest acceptable transfer price from the viewpoint of the selling division is the variable cost per unit, which is $11 per bag.

The Red River Division of Alto Company Produces and Sells