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:

Accounts Receivable Period

The average number of days it takes for a business to collect payments from its credit sales, indicating the efficiency of its credit and collection policies.

Cash Balance

A measure of the amount of cash that a company, or an individual, has on hand at any given time.

Short-Term Loan

A loan scheduled to be repaid in less than a year, often used for immediate cash flow needs.

Annual Net Cash Inflow

The total amount of cash that a business generates in a year, after all expenses and taxes are subtracted from total cash inflows.