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Freberg Company, a division of Dudge Cars, produces automotive batteries. Freberg sells the batteries to its customers for $92 per unit. The variable cost per unit is $55, and fixed costs per unit are $16. Top management of Dudge Cars would like Freberg to transfer 30,000 batteries to another division within the company at a price of $61. Freberg has sufficient excess capacity to provide the 30,000 batteries to the other division.

Compute the minimum transfer price that Freberg should accept.

Answer :

Final answer:

The minimum transfer price that Freberg Company should accept for the transfer of batteries to another division within Dudge Cars is the variable cost per unit, which is $55.

Explanation:

The minimum transfer price that Freberg should accept is the variable cost per unit because that is the cost that Freberg would incur to produce an extra unit for the other division. Fixed costs are not included in the transfer price calculation because they are not directly tied to the production of the specific 30,000 batteries. Therefore, the minimum transfer price would be the variable cost of $55 per unit.

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The answer is minimum transfer price that Freberg should accept is $55 per unit.

To compute the minimum transfer price that Freberg should accept, we need to consider the variable cost per unit and the fixed costs per unit.

  • Variable cost per unit = $55
  • Fixed cost per unit = $16

Total cost per unit = Variable cost + Fixed cost

= $55 + $16

= $71

Since Freberg has excess capacity and the variable cost per unit represents the incremental cost of producing additional units, the minimum transfer price should be equal to the variable cost per unit, which is $55.

Therefore, the minimum transfer price that Freberg should accept is $55 per unit.