Division X Makes a Part That It Sells to Customers

question 162

Multiple Choice

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below: Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales.According to the formula in the text,what is the lowest acceptable transfer price from the standpoint of the selling division?

• A)$50
• B)$49
• C)$46
• D)$30
• E)$20

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Definitions:

Action Potential

A brief electrical charge that travels down a neuron, initiating neurotransmission and facilitating neural communication.

All Or None

A principle that states a neuron either fires with full strength or not at all, depending on whether the stimulus reaches a certain threshold.

Principle

A basic principle or assertion that acts as the cornerstone for a belief system or behavioral guide or supports a sequence of logical thinking.

Fires

Rapid oxidation processes that result in the emission of heat and light in varying intensities; often considered a hazard when uncontrolled.