Question - Cruises, Inc., operates two divisions: a management division that owns and manages cruise ships in the Florida Keys and a repair division that operates a dry dock in Marble Sand Florida. The repair division works on company ships, as well as other large-hull ships.
The repair division has an estimated variable cost of $28.50 per labor-hour. The repair division has a two backlog of work for outside ships. They charge $48.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $30.00 per hour, including leasing an adequate work area.
If the repair division had idle capacity, what is the minimum transfer price that the repair division should obtain?
$28.50
$30.00
$39.00
$46.50