Wetherald Products, Inc

question 19

Multiple Choice

Wetherald Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump.
Assume that the Pump Division is selling all of the pumps it can produce to outside customers. What should be the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division?

• A) $64 per unit
• B) $74 per unit
• C) $82 per unit
• D) $53 per unit

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Definitions:

Cumulative Preferred Stock

Cumulative preferred stock is a type of preferred stock that accumulates dividends in case of non-payment in any period, requiring these dividends to be paid out before any dividends to common stockholders.

Dividend Payable

A liability recorded when a company declares dividends to be paid to shareholders, representing the amount owed until the dividends are distributed.

Current Liability

Liabilities due within a short period, usually one year, that are to be paid with current assets.

Nearness to Maturity

The time remaining until a financial instrument reaches its specified maturity date, affecting its price and interest rate sensitivity.