A Selling Division Produces Components for a Buying Division That

question 24

Multiple Choice

A selling division produces components for a buying division that is considering accepting a special order for the products it produces. The selling division has excess capacity. The minimum price the selling division would be willing to accept is

• A)the selling division's variable costs.
• B)the buying division's outside purchase price.
• C)the price that would allow the buying division to cover its incremental cost of the special order.
• D)the price that would allow the selling division to maintain its current ROI.

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Definitions:

Total Revenue

The total income received by a firm from the sale of its goods or services before any costs or expenses are deducted.

Elasticities

Indicators that show the sensitivity of the demand or supply of a product to variations in its price, income levels, or other relevant elements.

Elasticity of Demand

A measure of how much the quantity demanded of a good or service changes in response to a change in its price.

Determinant

A factor or element that causes change in an outcome or condition, often used in reference to variables that affect economic indicators.