Dockside Enterprises Incorporated Operates Two Divisions: (1) a Management Division

Dockside Enterprises Incorporated operates two divisions: (1) a management division that owns and manages bulk carriers on the Great Lakes and (2) a repair division that operates a dry dock in Tampa, Florida. The repair division works on company ships and outside large-hull ships. The repair division has an estimated variable cost of $37 per labor-hour, has a backlog of work for outside ships, and charges $70.00 per hour for labor, which is standard for this type of work. The management division complained that it could hire its own repair workers for $45.00 per hour, including leasing an adequate work area.
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If the repair division had idle capacity, what is the minimum transfer price that the repair division should obtain?

A) $33.00.
B) $37.00.
C) $45.00.
D) $70.00.

Correct Answer:

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