Unformatted text preview: (b) Assuming that the Small Motor Division does not have excess capacity, compute the minimum acceptable price for the transfer of the small motor to the Household Division. When no excess capacity is available, transfer price of motor LN233 will be the variable cost per unit and the opportunity cost. Here Contribution lost per unit is the opportunity cost per unit. Selling price per unit $30 Variable cost per unit $8 Fixed cost per unit $5 Contribution cost = selling Price – variable cost $30 – $8 = $22 Contribution cost = $22 Transfer price per unit = Variable cost per unit + Contribution cost per unit $8 + $22 = $30 Transfer price per unit = $30 (c) Explain why the level of capacity in the Small Motor Division has an effect on the transfer price. When there is no or limited capacity the transfer price needs to at least cover its variable cost per motor plus its lost contribution margin per motor, referred to as the opportunity cost....
View Full Document
- Spring '08
- Accounting, Small Motor Division