The Pillar Division of the Gothic Building Company Produces Basic

question 78

Multiple Choice

The Pillar Division of the Gothic Building Company produces basic pillars which can be sold to outside customers or sold to the Lantern Division of the Gothic Company. The Lantern Division wants to purchase 25,000 pillars from the Pillar Division. The following data are available for last year's activities of the Pillar Division:
$$\begin{array} { ll} \text { Capacity in units } & 300,000 \text { pillars } \\\text { Selling price per pillar to outside customers } & \$ 1.75 \\\text { Variable costs per pillar } & \$ 0.90 \\\text { Fixed costs, total } & \$ 150,000\end{array}$$
The total fixed costs would be the same for all the alternatives considered.
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Suppose there is ample capacity so that transfers of the pillars to the Lantern Division do not impact sales to outside customers. What is the lowest transfer price that would not reduce the profits of the Pillar Division?

• A) $0.90.
• B) $1.35.
• C) $1.41.
• D) $1.75.

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