Division C Makes a Part That It Sells to Customers

question 9

Multiple Choice

Division C makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division D of the same company would like to use the part manufactured by Division C in one of its products. Division D currently purchases a similar part made by an outside company for $79 per unit and would substitute the part made by Division C. Division D requires 1,000 units of the part each period. Division C has ample excess capacity to handle all of Division D's needs without any increase in fixed costs and without cutting into outside sales. What is the lowest acceptable transfer price from the standpoint of the selling division?

• A) $75
• B) $79
• C) $54
• D) $69

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Definitions:

Trust

Confidence in the reliability, truth, ability, or strength of someone or something.

Negative Message

Communication that conveys bad news, rejection, or feedback that might not be favorably received by the recipient.

Fixing the Problem

Fixing the problem involves identifying, analyzing, and resolving an issue or malfunction to restore the normal or desired operation of a system or relationship.

Superior

Higher in status, quality, or rank; often refers to products, services, or positions that are considered to be better than others.