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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?


Definitions:

Competitive

Relating to or characterized by competition; striving to gain or win something by defeating or establishing superiority over others.

Effective Problem-Solving

A process or strategy that involves identifying, analyzing, and resolving issues in a manner that is both efficient and results in the most beneficial outcome.

Inductive Reasoning

The process of making generalized conclusions based on specific observations or facts.

Listening

The act of giving one's attention to sound or someone speaking, often leading to understanding.

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