A Company Has Two Divisions,A and B,each Operated as a Profit

question 38

Multiple Choice

A company has two divisions,A and B,each operated as a profit center.Division A charges Division B $35 per unit (for each unit transferred to Division B) .Other data for Division A are as follows: Division A is planning to raise its transfer price to $50 per unit.Division B can purchase units at $40 per unit from outsiders,but doing so would idle Division A's facilities (now committed to producing units for Division B) ,Division A cannot increase its sales to outsiders.From the perspective of the company as a whole,from who should Division B acquire the units,assuming Division B's market is unaffected?

• A)Outside vendors.
• B)Division A,but only at the variable cost per unit.
• C)Division A,but only until fixed costs are covered,then should purchase from outside vendors.
• D)Division A,in spite of the increased transfer price.

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Definitions:

Consumption Spending

The expenditure by households on goods and services, excluding purchases of new housing, which is a key component in calculating a country's gross domestic product (GDP).

Permanent Tax

A tax implemented with no predetermined end date, often considered to be indefinitely applied.

Temporary Tax

A temporary tax is a levy imposed by a government for a specific period before it is automatically revoked or reassessed.

Major Export

The primary good or service sold by a country to foreign markets.