Answer (D) is correct . In a perfectly competitive market, market price is ordinarily the appropriate transfer price. Because the market price is objective, using it avoids waste and maximizes efficiency. In a perfectly competitive market, the market price equals the minimum transfer price, which is the sum of outlay cost and opportunity cost. Outlay cost is the variable cost per unit, or $34 ($34,000 ÷ 1,000). Opportunity cost is the contribution margin forgone, or $16 ($50 – $34). Thus, the minimum transfer price is $50 ($34 + $16).
Answer (A) is incorrect because Given that Alpha Division has no idle capacity, the transfer price to Beta should be the market price of $50 per unit.
Answer (B) is incorrect because The opportunity cost needs to be included.
Answer (C) is incorrect because The minimum transfer price equals outlay (variable) costs plus opportunity cost, not variable costs plus fixed costs.
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The minimum transfer price that should be charged to the Beta Division of the same company for each component is