Problem
The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $28 per unit. Variable costs for the casing are $ 15 per unit and fixed cost is $3 per unit. Cotwold executives would like for the Molding Division to transfer 11,000 units to the Assembly Division at a price of $22 per unit.
Assume that the Molding Division is operating at full capacity.
Required:
1. Should it accept the transfer price proposed by management?
Yes
No
2. Identify the minimum transfer price that the Molding Division will accept.