Two of the Decentralized Divisions of Gamberi Electronics Corporation Are

question 284

Multiple Choice

Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics Division and the Components Division. The Plastics Division sells molded parts to both the Components Division and to customers outside the corporation.Assume that the Plastics Division is currently operating with idle capacity. Also assume that the Components Division wants to purchase from Plastics all of the additional parts that could be made with this idle capacity. In order to increase its current level of profitability, the Plastics Division should accept any transfer price on these additional parts that is above the:

• A) variable cost of the additional parts.
• B) full (absorption) cost of the additional parts.
• C) variable cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.
• D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.

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Definitions:

Straight-Line Method

A method of calculating depreciation of an asset where the expense is evenly distributed over its useful life.

Scrap Value

The estimated resale value of an asset at the end of its useful life, often considered when calculating depreciation.

Units-Of-Production Method

A depreciation method that allocates expense based on the actual usage or production levels of the asset.

Scrap Value

The estimated residual value of an asset after it has reached the end of its useful life and is no longer economically serviceable.