Division P of the Nyers Company Makes a Part That

question 264

Multiple Choice

Division P of the Nyers Company makes a part that can either be sold to outside customers or transferred internally to Division Q for further processing. Annual data relating to this part are as follows: Division Q of the Nyers Company requires 15,000 units per year and is currently paying an outside supplier $33 per unit. Consider each part below independently.If outside customers demand 80,000 units and if, by selling to Division Q, Division P could avoid $4 per unit in variable selling expense, then according to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

• A) $35 per unit
• B) $21 per unit
• C) $31 per unit
• D) $33 per unit

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Definitions:

Production Possibilities Curve

A graphical representation showing the maximum number of goods or services that can be produced efficiently with available resources and technology.

Unattainable

Something not possible to achieve or reach, often due to inherent limitations or barriers.

Output Growth Rate

The rate at which the production of goods and services in an economy increases over a specified period.

Taxation

The practice of collecting taxes by a government to fund public services, infrastructure, and other governmental functions.