Assume the Thread Division Has Excess Capacity

question 13

Multiple Choice

Assume the Thread Division has excess capacity. The Garment Division wants the Thread Division to furnish them additional spools of thread that could be made using the excess capacity. In a negotiated transfer price, the Thread Division should accept as a minimum any transfer price that exceeds the

• A) total cost of producing spools for outside sales.
• B) variable costs of producing the additional spools for the Garment Division.
• C) contribution margin and outside spool sales.
• D) foregone contribution margin on outside spool sales.

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Definitions:

Competitive Market

A market structure characterized by many buyers and sellers, where no single entity can dictate the market price of the product or service.

Final Product

The last output of a production process, after all stages of production are completed.

Marginal Revenue Product Curve

A graphical representation showing how the extra revenue generated from employing one more unit of a resource changes as more of the resource is employed.

Demand Curve

A visual map indicating how consumer demand for a product varies with changes in its price.