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:

Advertising

The activity or profession of producing advertisements for commercial products or services.

Elastic Demand

A situation where the quantity demanded of a good or service significantly changes in response to a change in price.

Total Revenue

The total amount of money generated by the sale of goods or services, calculated as the unit price multiplied by the quantity sold.

Delicatessen

A store or section of a grocery store selling cured meats, cheese, and other specialty food items.