Perrin Co has two divisions, A and B.
Division A has limited skilled labour and is operating at full capacity making product Y. It has been asked to supply a different product, X, to division B. Division B currently sources this product externally for $700 per unit.
The same grade of materials and labour is used in both products. The cost cards for each product are shown below:
Product Y X
($)/unit ($)/unit
Selling price 600 –
Direct materials ($50 per kg) 200 150
Direct labour ($20 per hour) 80 120
Apportioned fixed overheads ($15 per hour) 60 90
Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?