The Stake Division of the Outdoor Lumination Company Produces Stakes

question 27

Multiple Choice

The Stake Division of the Outdoor Lumination Company produces stakes which can be sold to outside customers or transferred to the Solar Light Division of the Outdoor Lumination Company. Last year, the Solar Light Division bought 50,000 stakes from the Stake Division. The following data are available for last year's activities in the Stake Division:
$$\begin{array} { l c c } \text { Capacity in units } & 400,000 \text { stakes } \\\text { Quantity sold to outside customers } & 350,000 \text { stakes } \\\text { Selling price per stake to outside customers } & \$ 3.00 \\\text { Total variable costs per stake } & \$ 2.00 \\\text { Fixed operating costs } & \$ 200,000\end{array}$$
In order to sell 50,000 stakes to the Solar Light Division, the Stake Division had to give up sales of 30,000 stakes to outside customers. That is, the Stake Division could sell 380,000 stakes each year to outside customers (rather than only 350,000 stakes as shown above) if it were not making sales to the Solar Light Division.
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What is the lowest acceptable transfer price from the viewpoint of the selling division?

• A) $2.50.
• B) $2.00.
• C) $2.60.
• D) $3.00.

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