Division X Makes a Part That It Sells to Customers

question 88

Multiple Choice

Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:
$$\begin{array} { ll } \text { Selling price to outside customers } & \$ 50 \\\text { Variable cost per unit } & \$30 \\\text { Total fixed costs } & \$ 400,000 \\\text { Capacity in units } & 25,000\end{array}$$
Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the selling division?

• A) $50.
• B) $49.
• C) $46.
• D) $30.

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Definitions:

International Conglomerate

A large corporation that operates in various industries and is composed of companies located in multiple countries.

Foreign Corporation

A business entity that is registered in a country or jurisdiction different from where it primarily conducts its operations.

Supervisory Board

A group elected to oversee the management of an organization and make significant decisions on its behalf.

Corporate Structure

The organizational framework of a company, detailing the roles, responsibilities, and hierarchy within the organization.