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The Heating Division of Kobe International produces a heating element that it sells to its customers...

The Heating Division of Kobe International produces a heating element that it sells to its customers for $38 per unit. Its variable cost per unit is $23, and its fixed cost per unit is $8. Top management of Kobe International would like the Heating Division to transfer 15,400 heating units to another division within the company at a price of $31. The Heating Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept?

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Answer #1

As the heating division is operating at full capacity,

Minimum transfer price

= Variable cost + Opportunity cost

= 23 + (38-23)

= 38
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