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.
