Division a Produces a Component for Holden Ltd's Main Product

question 3

Multiple Choice

Division A produces a component for Holden Ltd's main product - motor vehicles. The division operates as a profit centre. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A: $\begin{array}{ll}\text { Direct material } & \$ 30 \text { per unit } \\\text { Direct labour } & \$ 25 \text { per unit } \\\text { Variable overhead } & \$ 10 \text { per unit } \\\text { Fixed overhead (based on a capacity of } & \$ 6 \text { per unit } \\5,000 \text { units) } &\end{array}$
The minimum price at which A would sell components internally is:

• A) $73
• B) $75
• C) $71
• D) $65

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Definitions:

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