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Unformatted text preview: Acme Chemical’s Bug Killer Division makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers $50 Variable cost per unit $30 Total fixed costs $400,000 Capacity in units 25,000 The Varmint Killer Division of the same company would like to use the part manufactured by the Bug Killer Division in one of its products. Varmint currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Bug Killer. Varmint requires 5,000 units of the part each period. Bug Killer can sell all of the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the Bug Killer division? From the perspective of the selling division, profits would increase as a result of the transfer if and only if: Transfer price > =Variable cost + Opportunity cost The opportunity cost is the contribution margin on the lost sales, divided by the number of units...
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- Spring '08
- transfer price, varmint, Bug Killer