Use the Following Information to Answer Questions
Division a Produces

question 20

Multiple Choice

Use the following information to answer questions
Division A produces a product that it sells to the outside market.It has compiled the following:
$$\begin{array} { l l } \text { Variable manufacturing cost per unit } & \$ 10 \\\text { Variable selling costs per unit } & \$ 3 \\\text { Total fixed manufacturing costs } & \$ 150,000 \\\text { Total fixed selling costs } & \$ 30,000 \\\text { Per unit selling price to outside buyers } & \$ 40 \\\text { Capacity in units per year } & 30,000\end{array}$$
-Division B of the same company is currently buying an identical product from an outside provider for $38 per unit.It wishes to purchase 5,000 units per year from Division A.Division A is currently selling 25,000 units of the product per year.If the internal transfer is made, Division A will not incur any selling costs.At what price would the internal transfer occur?

• A)at the lowest price that is acceptable to Division A
• B)at the maximum price that is acceptable to Division B
• C)It depends on the negotiation skills of the division managers.
• D)No transfer will occur.

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Definitions:

Specified Region

A particular area or district that is delineated for a specific purpose or activity.

World Trade Organization

A global organization whose member nations agree to negotiate and resolve disputes about tariffs and trade restrictions.

Free Trade

An economic policy that allows for the unrestricted import and export of goods among countries without the imposition of tariffs, quotas, or other restrictions.

Tariffs and Quotas

Government-imposed taxes on imported goods (tariffs) and limits on the quantity of goods that can be imported (quotas) to protect domestic industries from foreign competition.