Sheridan Corporation manufactures car stereos. It is a division of Bonita Motors, which manufactures vehicles. Sheridan...

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Sheridan Corporation manufactures car stereos. It is a divisionof Bonita Motors, which manufactures vehicles. Sheridan sells carstereos to Bonita, as well as to other vehicle manufacturers andretail stores. The following information is available forSheridan's standard unit: variable cost per unit $41, fixed costper unit $19, and selling price to outside customer $79. Bonitacurrently purchases a standard unit from an outside supplier for$73. Because of quality concerns and to ensure a reliable supply,the top management of Bonita has ordered Sheridan to provide183,000 units per year at a transfer price of $39 per unit.Sheridan is already operating at full capacity. Sheridan can avoid$3 per unit of variable selling costs by selling the unitinternally.
a) What is the minimum transfer price that Sheridan shouldaccept?
b) What is the potential loss to the corporation as a wholeresulting from this forced transfer?

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Explanation Selling price to outside customers 79 Variable cost per unit avoidable 3 per unit Minimum transfer price that High Sound should accept Selling price to outside See Answer

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Sheridan Corporation manufactures car stereos. It is a divisionof Bonita Motors, which manufactures vehicles. Sheridan sells carstereos to Bonita, as well as to other vehicle manufacturers andretail stores. The following information is available forSheridan's standard unit: variable cost per unit $41, fixed costper unit $19, and selling price to outside customer $79. Bonitacurrently purchases a standard unit from an outside supplier for$73. Because of quality concerns and to ensure a reliable supply,the top management of Bonita has ordered Sheridan to provide183,000 units per year at a transfer price of $39 per unit.Sheridan is already operating at full capacity. Sheridan can avoid$3 per unit of variable selling costs by selling the unitinternally.a) What is the minimum transfer price that Sheridan shouldaccept?b) What is the potential loss to the corporation as a wholeresulting from this forced transfer?