Fregozo Products, Incorporated, Has a Connector Division That Manufactures and Sells

question 80

Multiple Choice

Fregozo Products, Incorporated, has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below: The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $45 per connector.Assume that the Connector Division is selling all of the connectors it can produce to outside customers. What should be the minimum acceptable transfer price for the connectors from the standpoint of the Connector Division?

• A) $54 per unit
• B) $45 per unit
• C) $41 per unit
• D) $20 per unit

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Definitions:

Absorption Costing

A method of accounting for costs in which all costs of manufacturing a product, including fixed factory overheads, are attributed to the product.

Production Planning

The process of organizing and controlling every aspect of production, including scheduling, material handling, and labor allocation, to ensure efficient and effective output.

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of goods sold and treats fixed overhead expenses as period costs.

EBITDA

An acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization, indicating a company's financial performance by measuring its profitability without considering financial, accounting, and tax effects.