Figure 20-2 Klaehn Industries Is a Decentralized Company That Evaluates Its Divisions

question 21

Multiple Choice

Figure 20-2
Klaehn Industries is a decentralized company that evaluates its divisions based on ROI. The Fahl Division has the capacity to make 1,000 units of a component. The Fahl Division's variable costs are £40 per unit.
The Melton Division can use the component in one of its products. The Melton Division would incur £50 of variable costs to convert the component into its own product that sells for £160.
-Refer to Figure 20-2. Assume the Fahl Division can sell 800 units at £120 each. Any excess capacity will be unused unless the units are purchased by the Melton Division, which could use up to 100 units. The minimum transfer price that the Fahl Division would be willing to accept would be

• A)£120.
• B)£110.
• C)£100.
• D)£40.

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Definitions:

Target Market

The specific group of consumers at which a company aims its products and services.

Quantity Sold

The total number of units of a product or service sold over a specific period of time.

Primary Demand

The overall demand for a product category or market as a whole, rather than for a specific brand.