Figure 12-3

question 25

Multiple Choice

Figure 12-3. Grey Inc.has many divisions that are evaluated on the basis of ROI.One division,Centra,makes boxes.A second division,Mantra,makes chocolates and needs 80,000 boxes per year.Centra incurs the following costs for one box:
Centra has capacity to make 700,000 boxes per year.Mantra currently buys its boxes from an outside supplier for $1.80 each (the same price that Centra receives) .
Refer to Figure 12-3.Assume that Grey Inc.allows division managers to negotiate transfer price.Centra is producing 600,000 boxes.If Centra and Mantra agree to transfer boxes,what is the ceiling of the bargaining range and which division sets it?

• A)$1.48; Centra
• B)$1.35; Centra
• C)$1.80; Mantra
• D)$1.35; Mantra
• E)$1.80; Centra

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Definitions:

R&D Costs

Expenses related to the research and development activities of a company, aimed at the innovation, improvement, or development of new products or services.

Competitive Entrants

New participants in a market who compete against established incumbents, usually introducing new competition or innovation.

Skimming Pricing

A pricing strategy involving setting high prices initially and then gradually lowering them to make the product available to a broader market.

Penetration Pricing

A pricing strategy where the price of a new product is set lower than competitors to quickly gain market share.