The Cabinet Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Kitchen Division of the M.T. Woodhead Company. Last Year the Kitchen Division bought all of its 25,000 posts from Cabinet at P1.50 each. The following data are available for last year's activities of the Cabinet Division: Capacity in units300,000 postsSelling price per Cabinet to outside customersP1.75Variable costs per postP0.90Fixed costs, totalP150,000Suppose the transfers of posts to the Kitchen Division cut into sales to outside customers by 10,000 units. What is the lowest transfer price that would not reduce the profits of the Cabinet Division?

Note: As per the general rule of transfer price, in the case of sufficient capacity available, the…

Answered: The Cabinet Division of the M.T.…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

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The Cabinet Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Kitchen Division of the M.T. Woodhead Company. Last Year the Kitchen Division bought all of its 25,000 posts from Cabinet at P1.50 each. The following data are available for last year's activities of the Cabinet Division:

Capacity in units	300,000 posts
Selling price per Cabinet to outside customers	P1.75
Variable costs per post	P0.90
Fixed costs, total	P150,000

Suppose the transfers of posts to the Kitchen Division cut into sales to outside customers by 10,000 units. What is the lowest transfer price that would not reduce the profits of the Cabinet Division?

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