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Accounting

Problem:

Flowers and Flowers, Inc., has two divisions. Division A has an investment base of $750,000 and produces (and sells) 100,000 units of Eyne at a market price of $10.00 per unit. Variable costs total $3.50 per unit, and fixed charges are $4.00 per unit (based on a capacity of 120,000 units). Division B wants to purchase 25,000 units of Eyne from Division A. However, Division B is only willing to pay $6.75 per unit.

Required:

Question: What is the minimum transfer price for the 25,000 unit order that Division A would accept if it wishes to maintain its pre-order contribution?

a. $3.50

b. $4.00

c. $4.80

d. $6.00

Note: Please provide through step by step calculations.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91164577

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