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The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The following data are available for last year's activities of the Post Division: Capacity in units. 300,000 posts ********** Selling price per post to outside customers. $1.75 ************* Variable costs per post. $0.90 ********* Fixed costs, total........... $150,000 The total fixed costs would be the same for all the alternatives considered below. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Post Division?

The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The following data are available for last year's activities of the Post Division: Capacity in units. 300,000 posts ********** Selling price per post to outside customers. $1.75 ************* Variable costs per post. $0.90 ********* Fixed costs, total........... $150,000 The total fixed costs would be the same for all the alternatives considered below. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Post Division?

Principles of Cost Accounting
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter8: Standard Cost Accounting—materials, Labor, And Factory Overhead
Section: Chapter Questions
Problem 3P: Zippy Inc. manufactures a fuel additive, Surge, which has a stable selling price of 44 per drum. The...
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The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The following data are available for last year's activities of the Post Division: Capacity in units 300,000 posts ********* ************ Selling price per post to outside customers $1.75 *********** Variable costs per post. $0.90 ********* ********** Fixed costs, total. $150,000 ************* The total fixed costs would be the same for all the alternatives considered below. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Post Division?
Transcribed Image Text:The Post Division of the M.T. Woodhead Company produces basic posts which can be sold to outside customers or sold to the Lamp Division of the M.T. Woodhead Company. Last year the Lamp Division bought all of its 25,000 posts from Post at $1.50 each. The following data are available for last year's activities of the Post Division: Capacity in units 300,000 posts ********* ************ Selling price per post to outside customers $1.75 *********** Variable costs per post. $0.90 ********* ********** Fixed costs, total. $150,000 ************* The total fixed costs would be the same for all the alternatives considered below. Suppose the transfers of posts to the Lamp Division cut into sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Post Division?
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