Division a of Chappelle Company Has the Capacity for Making

question 106

Multiple Choice

Division A of Chappelle Company has the capacity for making 3,000 motors per month and regularly sells 1,950 motors each month to outside customers at a contribution margin of $62 per motor. The variable cost per motor is $35.70. Division B of Chappelle Company would like to obtain 1,400 motors each month from Division A. What should be the lowest acceptable transfer price from the perspective of Division A?

• A) $26.57.
• B) $51.20.
• C) $35.70.
• D) $62.00.

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Definitions:

Fair Value Option

An accounting choice giving companies the opportunity to measure financial assets and liabilities at their fair values with changes reflected in the income statement.

Net Income

Net income represents the total earnings of a company once all costs, expenses, and taxes are deducted from its total revenue.

Dividends

Dividends are a portion of a company's earnings distributed to shareholders, usually in the form of cash payments or additional stock.

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the net assets of the investee.