You Have Been Provided with the Following Information for Division

question 46

Multiple Choice

You have been provided with the following information for Division X of a decentralized company:
$$\begin{array} { l r } \text { Selling price } & \$ 90\\\text { Variable cost per unit } & 66 \\\text { Fixed cost per unit } & 20 \\\text { Sales volume (units) } & 22,500 \\\text { Capacity (units) } & 25,000\end{array}$$
Division Y of the same company would like to purchase all of its units internally. Division Y needs 6,000 units each period and currently pays $84 per unit to an outside firm. What is the lowest price that Division X could accept from Division Y? (Assume that Division Y wants to use a sole supplier and will not purchase less than 6,000 from a supplier.)

• A) $90.
• B) $84.
• C) $80.
• D) $66.

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Definitions:

Fair Value

A reevaluation measure used to assess the worth of an asset or liability based on current market conditions, focusing on the price that would be received to sell the asset or needed to transfer the liability.

Partial Equity Method

An accounting method used for investments, wherein an investor recognizes its share of investee profits, but only to the extent of dividends received.

Equity Income

Income that an investment generates from dividends on stocks or mutual funds, indicating earnings derived from ownership interests in companies.

Internal Accounting Records

Documents and records kept by a company that detail its financial transactions, assets, liabilities, and equity.