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

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Definitions:

Spool Valve

Commonly used hydraulic valve in which a sliding spool within a valve body is used to open and close hydraulic subcircuits.

Hydraulic Circuits

systems that use fluid under pressure to perform a variety of actions in machinery and equipment, often for power transmission.

Hydraulic Analyzer

A device used to measure, analyze, and verify the performance of hydraulic systems through various metrics such as pressure, flow, and temperature.

Circuit Flow

Circuit Flow describes the path and movement of electrical current through a circuit, indicating how electricity travels from the source, through various components, and back to the source.