Division M Makes a Part That It Sells to Customers

question 12

Multiple Choice

Division M makes a part that it sells to customers outside of the company.Data concerning this part appear below: Division O of the same company would like to use the part manufactured by Division M in one of its products.Division O currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division M.Division O requires 5,000 units of the part each period.Division M can sell every unit it produces on the outside market.What should be the lowest acceptable transfer price from the perspective of Division O?

• A)$75
• B)$66
• C)$16
• D)$50
• E)$25

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Definitions:

Vertical Specialization

The process of dividing work and responsibilities within an organization or industry based on levels or stages of expertise, focusing on specific functions or processes.

Chain of Command

The formal line of authority, communication, and responsibility within an organization.

Span of Control

The number of subordinates or direct reports that a manager or leader has authority over, affecting management efficiency and organizational structure.

Horizontal Specialization

The division of work in an organization into specialized tasks or roles that are at the same hierarchical level, promoting expertise in specific areas.