Use the data for ITA International from BE9.7, but assume that the units being requested are special high-performance units, and that the division’s variable cost would be $24 per unit. What is the minimum transfer price that the machining division should accept?

Determine minimum transfer price for special order.

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The machining division of ITA International has a capacity of 2,000 units. Its sales and cost data are:

Determine minimum transfer price.

The machining division is currently selling 1,800 units to outside customers, and the assembly division of ITA International wants to purchase 400 units from machining. If the transaction takes place, the variable selling costs per unit on the units transferred to assembly will be $0/unit, and not $5/unit. What should be the transfer price in order not to affect the machining division’s current profit?


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