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Perrin Co has 2 divisions, A and B. Division A has limited skilled labour and is...

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Accounting

Perrin Co has 2 divisions, A and B. Division A haslimited skilled labour and is operating at full capacity makingproduct Y. It has been asked to supply a different product, X toDivision B. Division B currently sources this product externallyfor $700 per unit. The same grade of materials and labour is usedin both products. The cost card is below :
Product Y.X
Selling price $600. -
materials ($50 per kg) - $200.$150
Labour ($20 per hr) - $80.$120
Fixed overhead ($15 per hr) - $60.$90

Using opportunity cost approach to transfer pricing,what is the minimum transfer price?

Please explain your answer with workings and thereasoning behind it.
Thanks.

Answer & Explanation Solved by verified expert
4.3 Ratings (532 Votes)
Answer Note As per opportunity cost approach when Division is operating at full capacity making a product the minimum transfer price Variable cost for manufacturing    See Answer
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