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:

Interest Rate Parity

A theory suggesting that the difference in interest rates between two countries will be equal to the differential between the forward exchange rate and the spot exchange rate.

British Security

A financial instrument issued in the UK that represents either equity in a company, debt obligations, or other rights to ownership or profit.

Forward Rate

An agreed-upon price for a financial transaction that will occur at a future date.

International Fisher Effect

A theory stating that the difference in nominal interest rates between two countries is equal to the expected change in their exchange rates.