Figure 12-4

question 108

Multiple Choice

Figure 12-4. Quinn Inc.has a number of divisions.One division,Style,makes zippers that are used in the manufacture of boots.Another division,LeatherStuff,makes boots that use the zippers and needs 90,000 zippers per year.Style incurs the following costs for one zipper:
Quinn has capacity to make 950,000 zippers per year,but due to a soft market,only plans to produce and sell 620,000 zippers next year.LeatherStuff currently buys zippers from an outside supplier for $3.50 each (the same price that Style receives) .
Refer to Figure 12-4.Assume that Quinn allows negotiated transfer pricing.What is the ceiling of the bargaining range and which division sets it?

• A)$3.50; Style
• B)$3.50; LeatherStuff
• C)$2.70; Style
• D)$2.70; LeatherStuff
• E)$1.38; Style

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Definitions:

Guarantee

A formal promise or assurance that certain conditions will be met, including the quality or durability of a product, or the repayment of a loan.

Interest Rate

The percentage at which interest is charged or paid on borrowed or invested funds over a specific period of time.

Illness

A condition of being unwell, either physically or mentally.

Judgment Debt

The amount of money that a court has ordered one party to pay another party as a result of legal action.