Mathematics · Transfer Pricing
Product S is produced by Division A, and may be sold externally or transferred to Division B for further processing. The market selling price per kg of Product S is $6.10. Product S can be further processed by Division B into Product SX, and sold to external markets for $6.80. The variable cost to further process Product S into Product SX is $0.80. Both divisions are evaluated as profit centres. External demand for Product S is only 1,500 kg per month, but 1,800 kg per month are produced since Division A operates at full capacity in order to meet demand for other joint products of the process. Any unsold kg of Product S are scrapped at the end of the month for zero value. Division B wishes to buy 500 kg per month of Product S from Division A. What is the minimum total transfer price that Division A would accept for the 500 kg of Product S?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1$3,050
- 2$1,360
- 3$1,220✓
- 4$0
Correct answer
$1,220
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