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Division J makes a product, R, which it sells externally into a perfectly competitive market for £57; this represents a 90% mark-up on standard variable cost. It also transfers product R to Division K. The costs for the external sales include variable selling costs of £1.50 which are not incurred on transfers to Division K. If total external demand for product R exceeds the capacity of Division J, what is the optimal transfer price between divisions for a unit of product R?

Division J makes a product, R, which it sells externally into a perfectly competitive market for £57; this represents a 90% mark-up on standard variable cost. It also transfers product R to Division K. The costs for the external sales include variable selling costs of £1.50 which are not incurred on transfers to Division K. If total external demand for product R exceeds the capacity of Division J, what is the optimal transfer price between divisions for a unit of product R?

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter10: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 17E: Materials used by the Instrument Division of Ziegler Inc. are currently purchased from outside...
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Division J makes a product, R, which it sells externally into a perfectly competitive market for £57; this represents a 90% mark-up on standard variable cost. It also transfers product R to Division K. The costs for the external sales include variable selling costs of £1.50 which are not incurred on transfers to Division K.

If total external demand for product R exceeds the capacity of Division J, what is the optimal transfer price between divisions for a unit of product R?

A)  £54.50

B)  £55.50

C)  £56.72

D)  £57.00

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