Division G Makes a Part That It Sells to Customers

question 271

Multiple Choice

Division G makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division H of the same company would like to use the part manufactured by Division G in one of its products. Division H currently purchases a similar part made by an outside company for $83 per unit and would substitute the part made by Division G. Division H requires 500 units of the part each period. Division G has ample capacity to produce the units for Division H without any increase in fixed costs and without cutting into sales to outside customers. If Division G sells to Division H rather than to outside customers, the variable cost be unit would be $2 lower. What should be the lowest acceptable transfer price from the perspective of Division G?

• A) $47
• B) $87
• C) $83
• D) $57

---

Definitions:

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a given price within a specified time period.

Table: Price Elasticity

A tabulated representation of how the quantity demanded of a good responds to changes in its price, expressed as a ratio of percentage changes.

Midpoint Formula

A method used to find the midpoint between two points on a line segment, which is the average of the x-coordinates and y-coordinates of the points.

Price Elasticity

A metric determining the responsiveness of a good's demand to its price changes.