Wetherald Products, Incorporated, Has a Pump Division That Manufactures and Sells

question 40

Multiple Choice

Wetherald Products, Incorporated, has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below: The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump.Assume that the Pump Division has enough idle capacity to handle all of the Pool Products Division's needs. What should be the minimum acceptable transfer price for the pumps from the standpoint of the Pump Division?

• A) $74 per unit
• B) $53 per unit
• C) $64 per unit
• D) $82 per unit

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Definitions:

Elastic Supply Curve

A concept in economics describing a supply curve where the quantity supplied changes significantly in response to a change in price.

Purely Competitive Market

An economic structure where numerous small companies, a uniform product, unimpeded access and exit, and absolute knowledge prevail.

Industry Exit

The process by which a company ceases operations in a specific industry, typically due to financial losses, market competition, or changing industry conditions.

Long Run Adjustments

Changes or adaptations made by firms in response to long-term changes in market conditions, where all inputs and production capacities can be varied.