Division G Makes a Part That It Sells to Customers

question 1

Multiple Choice

Division G makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division H of the same company would like to use the part manufactured by Division G in one of its products. Division H currently purchases a similar part made by an outside company for $83 per unit and would substitute the part made by Division G. Division H requires 500 units of the part each period. Division G has ample capacity to produce the units for Division H without any increase in fixed costs and without cutting into sales to outside customers. If Division G sells to Division H rather than to outside customers, the variable cost be unit would be $2 lower. What should be the lowest acceptable transfer price from the perspective of Division G?

• A) $47
• B) $87
• C) $83
• D) $57

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Definitions:

Melting Point

The temperature at which a solid becomes a liquid at atmospheric pressure.

Prostaglandins

A collection of active lipid molecules that exhibit various hormone-like functions in animals.

Blood Pressure

The pressure exerted by circulating blood upon the walls of blood vessels, and is one of the principal vital signs.

Acidic Water

Water with a pH less than 7, indicating it has a higher concentration of hydrogen ions than pure water.