The Table and Chair Divisions Are Part of the Same

question 155

Multiple Choice

The Table and Chair Divisions are part of the same company. Currently the Chair Division buys a part from Table for $384. The Table Division wants to increase the price of the part it sells to Chair by $96 to $480. The manager of Chair has stated that it cannot afford to go that high, as it will decrease the division's profit to near zero. Chair can buy the part from an outside supplier for $448. The cost data for the Table Division is as follows: $$\begin{array} { l l } \text { Direct materials } & \$ 136.00 \\\text { Direct labor } & 200.00 \\\text { Variable overhead } & 40.00 \\\text { Fixed overhead } & 38.40\end{array}$$ If Table ceases to produce the parts for Chair, it will be able to avoid one- third of the fixed manufacturing overhead. The Table Division has excess capacity but no alternative uses for its facilities. _ is the maximum transfer price that should be charged.

• A) $480.00
• B) $414.40
• C) $388.80
• D) $448.00

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