The Tire Division of Traker Company Produces Tires for Off-Road

question 26

Multiple Choice

The Tire Division of Traker Company produces tires for off-road sport vehicles. One-third of Tire's output is sold to an internal division of Traker; the remainder is sold to outside customers. Tire's estimated operating profit for the year is:
$\begin{array}{lrr}&\text {Internal}&\text { Outside}\\ \text {Sales } &\$150,000&\$40,000\\ \text { Variable costs } &100,000&200,000\\ \text { Fixed costs} &\underline{30,000}&\underline{60,000}\\ \text { Operating profits} &\underline{\$20,000}&\underline{\$140,000}\\ \text {Unit sales } &10,000&20,000\\\end{array}$


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The internal division has an opportunity to purchase 10,000 tires of the same quality from an outside supplier on a continuing basis. The Tire Division cannot sell any additional products to outside customers. What is the minimum selling price that Tire should accept from the internal division?

• A) $10.00.
• B) $13.00.
• C) $15.00.
• D) $50.00.

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Definitions:

Investment

The distribution of funds or assets with the intention of earning financial returns or profits.

Interest

Expenses incurred for the authorization to take out a loan, frequently shown as an annual rate in percentage.

Term Deposit

A financial product offered by banks that earns interest and is held for a predetermined period until it reaches the date of maturity.

Simple Interest Rate

An interest rate calculated only on the principal amount, not on previously earned interest.