Question 1

Division A produces a part that it sells to outside customers for $40. Variable cost is $22, and fixed cost is $10 per unit. Division B wants to purchase 1,000 units from Division A. Division A is operating at full capacity. What is the minimum transfer price Division A should accept?

Accepted Answer

Determine if there is excess capacity. If Full Capacity: Min Price = Market Price. If Excess Capacity: Min Price = Variable Cost.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Ignoring opportunity cost; using full cost ($32).

Division A produces a part that it sells to outside customers for $40. Variable cost is $22, and fixed cost is $10 per unit. Division B wants to purchase 1,000 units from Division A. Division A is operating at full capacity. What is the minimum transfer price Division A should accept?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 3

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