Lou Company Records Reveal the Following The Variable Costs of Division Y Will Be Incurred Whether

question 95

Multiple Choice

Lou Company records reveal the following: $\begin{array}{lr}\text { Division } \mathrm{X}\\\text { Market price of finished component to outsiders } & \$ 32 \\\text { Variable costs per component } & \underline{24} \\\text { Contribution margin per component } & \underline{\$ 8} \\\text { Total contribution for } 20,000 \text { components } & \$ 160,000\end{array}$

$\begin{array}{ll}\text { Division Y }\\\text {Sales price of finished product Variable costs: } & &&\$42 \\\text {Division X 1 component @ \$24) } & \\\text {Division Y } & &\$24 \\\text { Assembly} & \$9 \\\text { Packaging} & 4&13&-37 \\\text {Contribution margin per unit } & &&\$5 \\\text {Total contribution for 20,000 units } & &&\$100,000 \\\end{array}$
The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.If Division X wants to transfer the components to Division Y for $34 each, the manager of Division Y would _____.

• A)not want to buy from Division X, as the same component could be purchased at the market price of $32
• B)buy from Division X, as this would be in the best interest of the company as a whole
• C)buy from Division X as long as Division X could supply a large enough quantity to make it profitable to Division Y
• D)probably ask Division X's manager to split the difference between the $34 and the market price of $32 to arrive at a transfer price of $36

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Definitions:

Social Purpose

Social purpose is the driving force behind an organization's efforts to achieve positive social impact and contribute to societal well-being beyond its primary commercial objectives.

Edelman Study

A comprehensive research project or report, often related to public relations or communications, produced by the Edelman firm.

Purchasing Decisions

The process by which individuals or organizations decide what, when, and from whom to buy goods or services.

Evaluation Phase

A stage in a project, program, or strategy where its effectiveness, outcomes, and impacts are assessed.