You have been given the assignment to read Beer School: Bottling Success at The Brooklyn Brewery. Upon completion of reading this informative book dealing with this real life rags to riches entrepreneurial….
Calculate the minimum price per unit the company should accept.
1. Moona Company has two divisions. Division A produces a component that it transfers to Division B, who uses the component in its main product. Division A incurs $400 in variable costs to manufacture each component, as well as $100,000 in fixed costs. Division B incurs $1,000 in variable costs in addition to the cost of the component to manufacture the main product, as well as $700,000 in fixed costs. Division A could sell the components on the market for $700. Moona sets its transfer prices at variable cost plus 40%. Calculate the transfer price.
2. Annor Clothing wishes to place a stock of 100 holiday sweaters on clearance after the holiday season. The sweaters cost Annor $25, and sold for $50 during the holiday season. Annor will incur opportunity costs of $7 per sweater for rack space, and will spend $500 to advertise the clearance sale. Calculate the minimum price per unit the company should accept.