Problem - Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:
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Selling price to outside customers
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$75
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Variable cost per unit
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$50
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Total fixed costs
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$400,000
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Capacity in units
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25,000
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Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can already sell all of the units it can produce on the outside market.
Required: What should be the lowest acceptable transfer price from the perspective of Division X?