An Appropriate Transfer Price Between Two Divisions of the Fathom

question 129

Multiple Choice

An appropriate transfer price between two divisions of The Fathom Company can be determined from the following data: (CIA adapted)
$\begin{array}{llr} \text { Fabricating Division } &\\ \text {Market price of subassembly } &\$50\\ \text { Variable cost of subassembly } &\$20\\ \text { Excess capacity (in units) } &1,000\\ \text { Assembling Division} &\\ \text { Number of units needed } &900\\\end{array}$

What is the natural bargaining range for the two divisions?

• A) Between $20 and $50.
• B) Between $50 and $70.
• C) Any amount less than $50.
• D) $50 is the only acceptable transfer price.

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