The Book Division of Tandem books manufactures and sells paper back books for $9.60 per book. Its unit variable costs and unit fixed costs are $0.24 and $0.09, respectively. The Sunset Division wants to purchase 50,000 special edition hardback books. The variable cost will be $1.90 per book. Assuming the Tandem Division is already operating at full capacity, what is the minimum transfer price it should accept?

Question

Donna Cooley

Business

27 September, 00:40

The Book Division of Tandem books manufactures and sells paper back books for $9.60 per book. Its unit variable costs and unit fixed costs are $0.24 and $0.09, respectively. The Sunset Division wants to purchase 50,000 special edition hardback books. The variable cost will be $1.90 per book. Assuming the Tandem Division is already operating at full capacity, what is the minimum transfer price it should accept?

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Answers (1)

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Reed Garza · Answer 1

Minimum transfer cost will be $11.26

Explanation:

Selling price of paper back books is $9.60 per book

Unit variable cost = $0.24

Unit fixed cost = $0.09

Variable cost for book = $1.90 per book

If the company is operating on full capacity then transfer price will be equal to

Transfer cost = variable cost + contribution to the lost.

So minimum transfer cost = $1.90 + ($9.60-$0.24) = $11.26

Therefore minimum transfer cost will be $11.26