Division a of Sibley, Inc Division B Wants to Purchase Units from Division A

question 28

Multiple Choice

Division A of Sibley, Inc. has operating data as follows: $$\begin{array} { l l } \text { Capacity } & 20,000 \text { units } \\\text { Selling price } & \$ 80 \text { per unit } \\\text { Variable costs } & \$ 45 \text { per unit } \\\text { Fixed costs } & \$ 20 \text { per unit }\end{array}$$ Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit.
If Division A is operating at capacity, what is the minimum price it should charge?

• A) $40
• B) $75
• C) $20
• D) $60

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Definitions:

Transfer Price

A price charged for goods or services transferred between departments or divisions of the same company or between affiliated companies.

Valve Division

Refers to a specialized business unit within a company that focuses on the production and sales of valves.

Variable Expenses

costs that vary in total in direct proportion to changes in activity level or volume, such as materials costs or commission expenses.

Transfer Price

The rate assigned to commodities or services moved between branches or associated companies of the same entity.