Spice Company Has Two Divisions,Parsley and Sage

question 24

Multiple Choice

Spice Company has two divisions,Parsley and Sage.Parsley produces a unit that Sage could use in its production.Sage currently is purchasing 50,000 units from an outside supplier for $50.Parsley is operating at less than full capacity and has variable costs of $27 per unit.The full cost to manufacture the unit is $38.Parsley currently sells 450,000 units at a selling price of $54.If an internal transfer is made,variable shipping and administrative costs of $2 per unit could be avoided.What would be the minimum transfer price?

• A)$25
• B)$27
• C)$36
• D)$52

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Definitions:

Producer's Risk

Producer's risk is the probability of rejecting a quality product during the inspection process, falsely identifying it as defective.

Consumer's Risk

The probability of accepting a lot or batch of goods that contains a greater number of defects than a predetermined level, leading to consumer dissatisfaction.

Acceptance Sampling

A statistical quality control method where a random sample of items from a lot is tested to determine the acceptance or rejection of the entire lot.

Bad Lots

Refers to batches of goods or products that do not meet the quality standards set by the manufacturer or industry.