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:

Business Analysis

The practice of identifying business needs and determining solutions to business problems, often involving the assessment of business structure, processes, and operations.

Product Demand

The desire and willingness of consumers to purchase a particular product, influenced by factors like price, quality, and trends.

Innovative Products

Goods that introduce new features, functionalities, or efficiencies, offering novel solutions to consumers or improving upon existing products.

Existing Products

Goods or services that a company has been offering to the market, as opposed to newly developed offerings.