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Minimum Transfer Price

The heating division of ITA International produces a heating element that it sells to its customers for $42 per unit. Its variable cost per unit is $19, and its fixed cost per unit is $10. Top management of ITA International would like the heating division to transfer 15,000 heating units to another division within the company at a price of $29. The heating division is operating at full capacity. Assume that the units being requested are special high-performance units, and that the division's variable cost would be $24 per unit.

What is the minimum transfer price that the heating division should accept?

I don't understand what to do with the variable cost 24$/unit.

Solution Preview

The margin on each unit is $42-$19=$23 per unit.

So this means that if the heating division stops producing these ...

Solution Summary

The solution does a great job of answering the question. The solution is brief and concise and very easy to follow along. All the steps are clearly shown. It can be easily understood by anyone with a basic understanding of the topic. Overall, an excellent solution.

$2.19