Evergreen Corp

question 21

Multiple Choice

Evergreen Corp.has two divisions,Fern and Bark.Fern produces a widget that Bark could use in the production of units that cost $175 in variable costs,plus the cost of the widget,to manufacture.Fern's variable costs are $60 per widget,and fixed manufacturing costs are applied at a rate of $36 per widget.Widgets sell on the open market for $105 each.Evergreen's policy is that internal transfers will be made at variable cost.If Bark purchases the widgets from Fern,what will be the transfer price?

• A)$60
• B)$96
• C)$100
• D)$175

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Definitions:

External Benefits

Positive effects experienced by third parties as a result of an economic transaction not directly involved.

Efficient Outcome

A situation in which no individual can be made better off without making someone else worse off, typically referring to an optimal allocation of resources.

Output Level

The total quantity of goods or services produced by a firm or industry within a specific period.

External Costs

Costs that are not borne by the producer or consumer of a good or service, but by third parties or society as a whole, such as pollution.