RedEx Transport's Rail Division Has an Annual Capacity to Process

question 9

Multiple Choice

RedEx Transport's Rail Division has an annual capacity to process 800,000 tons of gravel used as a base under railroad tracks by railroads. The normal selling price is $62 per ton. At current operating levels, fixed costs are $10 per ton and variable costs are $32 per ton. The Air Division of RedEx Transport would like to buy 200,000 tons of gravel from the Rail Division to use in producing quality aggregate to be used for runways. The Rail Division is operating at 100 percent of capacity. The Air Division currently buys the gravel for $55 per ton from an outside source. What is the lowest price the Rail Division should accept if it wishes to see no decline in profits?

• A) $62
• B) $32
• C) $42
• D) $55

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Definitions:

Business Combinations

Transactions in which one company obtains control over one or more other businesses, resulting in a single reporting entity.

Leases

Contracts in which one party, the lessor, allows another, the lessee, to use an asset for a specific period in exchange for payment.

Income Taxes

Taxes imposed by governments on the income generated by individuals, corporations, and other entities, varying according to income level and type.

IFRS 1

The International Financial Reporting Standard that outlines the necessary steps for an entity to ensure its financial statements are IFRS-compliant for the first time.