Division X Sells Organic High-Gluten Flour to Division Y

question 54

Multiple Choice

Division X sells organic high-gluten flour to Division Y. Division X incurs costs of $0.375 per kilogram of flour. Division Y makes loaves of bread that sell for $2.50 each. Division Y incurs costs of $1.25 per loaf, excluding the cost of flour. Each loaf of bread uses one-half kilogram of flour.
What is the operating income per loaf for Division Y if the transfer price is set at $0.625 per kilogram for flour?

• A) $0.6250
• B) $0.9375
• C) $1.2500
• D) $0.8750

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Definitions:

Product Line Extensions

Introducing additional items in the same product category under the same brand name, often to target a new segment.

MultiBranding

A marketing strategy where a company markets multiple brands in the same product category or sector.

Brand Licensing

The authorization by the licensor to allow a licensee to use a brand's name, logo, or product for a specified period against a fee.

Private Branding

A strategy where products are manufactured and offered under the retailer's brand name rather than that of the manufacturer.