The Counter Division Can Sell Externally for $60 Per Unit

question 113

Essay

The Counter Division can sell externally for $60 per unit. Its variable manufacturing costs are $35 per unit, and its fixed costs are $12 per unit.
Required:
(a) What is the optimal transfer price for transferring internally, assuming the division is operating at capacity?
(b) What is the optimal transfer price for transferring internally, assuming the division is operating at well below capacity?

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Definitions:

Material Alteration

A significant change to a document or agreement that affects its legal obligations or rights.

Unauthorized Acquisition

Obtaining assets, data, or information without permission from the rightful owner or authority, which may involve breaches of security or law.

Dishonored

Refused; specifically, a payment that has been refused despite a holder presenting an instrument in a timely and proper manner.

Holder in Due Course

A legal term referring to a person who has acquired a negotiable instrument in good faith and for value, and thus has certain protections against defenses and claims that could be raised by prior parties.