A Company Has Two Divisions: One Making Components and the Other

question 9

Multiple Choice

A company has two divisions: one making components and the other electrical goods. The component division sells a heating ring to the electrical goods division to make kettles but this division can buy a similar component from an outside supplier for £12. The costs of a heating ring made by the component division include a variable cost of is £8 and an allocation of overhead costs of £5.
If the component division is operating at full capacity and can sell the heating ring to an external customer, what should the transfer price be?

• A) Above the market price of the electrical division's supplier
• B) Above the market price of the component division's customer and below the market price of the electrical division's supplier
• C) Below the market price of the electrical division's supplier
• D) Below the market price of the component division's customer

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Definitions:

Glass Ceiling

A social barrier that makes it difficult for women to rise to the top level of management.

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Women who hold positions of responsibility and authority in an organization or enterprise.

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