A Company Is Highly Centralized

question 18

Multiple Choice

A company is highly centralized.Division X,which is operating at capacity,produces a component that it currently sells in a perfectly competitive market for $13 per unit.At the current level of production,the fixed cost of producing this component is $4 per unit and the variable cost is $7 per unit.Division Y would like to purchase this component from Division X.The price that Division X should charge Division Y per unit for this component is:

• A)$7.
• B)$11.
• C)$13.
• D)$15.

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Definitions:

At-risk Amount

The maximum value taxpayers are at risk of losing in an investment, affecting the deductible loss limit in tax declarations.

Ordinary Loss

A loss derived from normal business operations or transactions that is not classified as a capital loss.

Passive Activity

Passive activity involves business or trade activities in which the person is not actively involved, affecting how losses and income are treated for tax purposes.

Suspended Losses

Losses that cannot be deducted in the current year and must be carried forward to future years for deduction under certain tax rules.