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?
What will be an ideal response?
(a)
When operating at capacity, the optimal transfer price is the market price of $60.
(b)
When operating below capacity, the optimal transfer price is the outlay cost of $35. Fixed costs are not outlay costs.
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