Division a Makes a Part That It Sells to Customers

question 35

Multiple Choice

Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below:
$$\begin{array} { l r r } \text { Selling price to outside customers } & \$ 75 \\\text { Variable cost per unit } & \$ 50 \\\text { Total fixed costs } & \$ 400,000 \\\text { Capacity in (units) } & 25,000\end{array}$$
Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?

• A) $75.
• B) $66.
• C) $16.
• D) $50.

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Definitions:

Vital Signs

Measurements of the body’s most basic functions, including temperature, pulse, respiration rate, and blood pressure.

Normal Limits

The range of values considered standard or acceptable for physiological measurements or laboratory test outcomes.

Pedal Pulse

The palpable beat of the artery at the top of the foot, used to assess blood circulation to the lower limb.

Surgical Procedure

A medical operation intended to diagnose or treat a condition through manual or instrumental techniques.