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Use the Information Below to Answer the Following Question(s)

question 138

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Use the information below to answer the following question(s) .The Burnaby Division of Columbia Ltd.produces and sells component parts.Its variable costs per unit are $80 for direct materials, $32 for direct labour and $18 for variable factory overhead.It currently can sell it components on the outside market at a price of $165/unit.Fixed overhead costs are $22 per unit based on a denominator volume of 180,000 units.
-The Surrey Division of Columbia Ltd.has approached the Burnaby Division and requested that it supply 25,000 units of the component.The Burnaby Division will save $3 per unit of direct materials costs for the components manufactured for the Surrey Division.Assuming Burnaby Division has idle capacity, what is the minimum transfer price the Burnaby Division should agree to accept?

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Definitions:

Empirical Evidence

Information obtained through observation and documentation of patterns and behaviors, serving as a basis for forming conclusions.

Proved Reserves

Quantities of natural resources, such as oil or natural gas, that geological and engineering data demonstrate with reasonable certainty to be recoverable under existing economic and operating conditions.

Titanium

A strong, lightweight, corrosion-resistant metal with significant usage in aerospace, medical devices, and consumer products.

Market Price

The ongoing price for buying or selling a service or asset at the moment.

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