Merlin Component's Hillside Division Is Currently Operating at 100 Percent

question 112

Multiple Choice

Merlin Component's Hillside Division is currently operating at 100 percent capacity (capacity is 100,000 units) . The normal selling price for its wrap film is $12 per case. At current operating levels, fixed costs are $3 per case and variable costs are $7 per case. Another division of Merlin Components would like to buy from the Hillside Division. If this sale is made, $1.20 per case in variable selling and administrative costs can be saved. Calculate the most acceptable transfer price per unit.

• A) $10.80
• B) $12.00
• C) $7.00
• D) $5.80

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Definitions:

Ordinary Bailments

Agreements where personal property is transferred from one party to another, with the intention of returning the property after a certain period or purpose.

Benefit

An advantage or profit gained from something.

Constructive Delivery

A symbolic delivery that confers the right to take possession of property that cannot be physically delivered.

Exclusive Possession

The right of a tenant or lessee to use and control a property without interference from the landlord or lessor.