Division P of the Nyers Company Makes a Part That

question 30

Multiple Choice

Division P of the Nyers Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Division Q of the Nyers Company requires 15,000 units per year and is currently paying an outside supplier $33 per unit. Consider each part below independently.
If outside customers demand 70,000 units, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division for each of the 15,000 units needed by Q?

• A) $33 per unit
• B) $27 per unit
• C) $28 per unit
• D) $29 per unit

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Definitions:

Support Department

A non-production department that provides essential services and support to the production departments and other parts of an organization.

Work Orders

Instructions or orders for work to be performed, typically including details about the job, materials to be used, and time schedule.

Separate Office Staff

The action or policy of maintaining distinct administrative or clerical staff for different departments or functions.

Decentralization

The transfer of control and decision-making from a centralized entity to local or individual authorities.