Division a of Tripper Company Produces a Part That It

question 94

Multiple Choice

Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow: Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $38 per unit. If Division A sells to Division B, $1 in variable costs can be avoided.
Assume that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into outside sales. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

• A) $40 per unit
• B) $39 per unit
• C) $28 per unit
• D) $27 per unit

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Definitions:

Time to Maturity

The remaining time until a financial instrument, such as a bond or loan, reaches its due date and the principal must be repaid.

Interest Payments

Payments made to lenders or bondholders as compensation for the use of borrowed money or invested capital.

Trust Company

A financial institution that acts as a trustee, managing estates, setting up trusts, and handling assets for beneficiaries.