Wetherald Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below:Capacity in units 55,000Selling price to outside customers $ 82Variable cost per unit $ 53Fixed cost per unit (based on capacity) $ 11The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump.Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division’s needs. What should be the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division?

When determining the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division, we need to consider the relevant costs associated with producing the pumps. Since the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs, there are no opportunity costs (i.e., no lost sales to outside customers).

The minimum acceptable transfer price in this scenario should cover at least the variable cost per unit, as fixed costs are not relevant for the transfer price decision when there is idle capacity.

Given the dataWhen determining the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division, we need to consider the relevant costs associated with producing the pumps. Since the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs, there are no opportunity costs (i.e., no lost sales to outside customers).

The minimum acceptable transfer price in this scenario should cover at least the variable cost per unit, as fixed costs are not relevant for the transfer price decision when there is idle capacity.

Given the 
- Variable cost per unit: $53

The minimum acceptable transfer price would be:

\[
\text{Minimum Acceptable Transfer Price} = \text{Variable Cost per Unit} = \$53
\]

Thus, the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division is $ \$53 $.

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### Related Questions:
1. What would be the impact on the Pump Division's profit if the transfer price is set at $53 per unit?
2. How does the transfer price affect the overall profitability of Wetherald Products, Incorporated?
3. What would be the maximum transfer price that the Pool Products Division would be willing to pay?
4. How would the transfer price change if the Pump Division did not have idle capacity?
5. If the Pool Products Division needs more than 4,000 units, how would this affect the transfer price?
6. How are fixed costs handled in transfer pricing decisions?
7. What is the impact on the Pool Products Division's cost structure if they purchase the pumps internally at $53 instead of from the overseas supplier?
8. What negotiation strategies could be used to agree on a transfer price between the Pump Division and the Pool Products Division?

### Tip:
When there is idle capacity, the minimum transfer price should typically be set to cover the variable costs, as fixed costs are already covered by existing operations and do not affect the incremental cost of additional production.

Explore how to determine the minimum acceptable transfer price for products in cost accounting. This problem involves calculating the transfer price based on variable costs and idle capacity, relevant to business finance and transfer pricing decisions.

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