Stokan Products, Incorporated, has a Antennae Division that manufactures and sells a number of products, including a standard antennae that could be used by another division in the company, the Aircraft Products Division, in one of its products. Data concerning that antennae appear below:Capacity in units 86,000Selling price to outside customers $ 63Variable cost per unit $ 22Fixed cost per unit (based on capacity) $ 18The Aircraft Products Division is currently purchasing 5,000 of these antennaes per year from an overseas supplier at a cost of $57 per antennae.Assume that the Antennae Division is selling all of the antennaes it can produce to outside customers. What should be the minimum acceptable transfer price for the antennaes from the standpoint of the Antennae Division?

To determine the minimum acceptable transfer price for the antennae from the standpoint of the Antennae Division, we need to consider both the variable cost and the opportunity cost associated with selling the antennae internally instead of to outside customers. Given that the Antennae Division is already selling all of its production capacity to outside customers, the opportunity cost will be equal to the contribution margin they are currently earning on each unit sold externally.

The contribution margin per unit is calculated as follows:

\[
\text{Contribution Margin} = \text{Selling Price} - \text{Variable Cost}
\]

Plugging in the values from the problem:

\[
\text{Contribution Margin} = \$63 - \$22 = \$41
\]

Since the Antennae Division is selling all of its capacity externally, selling a unit internally to the Aircraft Products Division means forgoing a contribution margin of $41 per unit.

Therefore, the minimum acceptable transfer price should be equal to the sum of the variable cost and the contribution margin (opportunity cost):

\[
\text{Minimum Acceptable Transfer Price} = \text{Variable Cost} + \text{Contribution Margin}
\]

\[
\text{Minimum Acceptable Transfer Price} = \$22 + \$41 = \$63
\]

Thus, the minimum acceptable transfer price for the antennae from the standpoint of the Antennae Division is $ \$63 $.

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### Related Questions:
1. How would the transfer price change if the Antennae Division had excess capacity?
2. What is the impact on the company's overall profit if the Aircraft Products Division purchases the antennae internally at the transfer price of $63?
3. How would the transfer price be affected if the variable cost per unit increased?
4. What would be the impact on the transfer price if the Aircraft Products Division needed more than 5,000 units?
5. How does the fixed cost per unit affect the determination of the transfer price?
6. If the overseas supplier reduces its price to $55 per antennae, how should the company respond?
7. What is the total opportunity cost for the Antennae Division if it supplies all 5,000 units to the Aircraft Products Division?
8. How would the Antennae Division's profit be affected if it sold 5,000 units internally instead of externally?

### Tip:
Always consider both variable costs and opportunity costs when determining transfer prices in situations where the selling division is operating at full capacity.

Learn how to determine the minimum acceptable transfer price for antennae from the standpoint of the Antennae Division at Stokan Products, Incorporated. This problem involves calculating contribution margin and considering variable costs in a transfer pricing scenario.

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