A Company Established a Branch to Sell Automobile Seat Covers

question 139

Multiple Choice

A company established a branch to sell automobile seat covers. The company purchases these covers and stores them in a warehouse. The covers are then shipped from the warehouse to both the home office and the new branch, FOB destination. Home office management is responsible for setting the transfer price of the covers charged to the branch. Per-unit costs of the covers are: According to the general transfer-pricing formula given in the text, the minimum transfer price that home office should charge the branch is:

• A)$62.50.
• B)$63.50.
• C)$66.00.
• D)$68.00.
• E)$69.00.

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Definitions:

Classical Theory

A school of economic thought that emphasizes the role of free markets in regulating the economy and argues for minimal government intervention.

Employment

The condition of having paid work, or the process or business of hiring workers.

Savings

The portion of income not spent on current consumption, often set aside for future use or investment.

Investment

The act of allocating resources, usually money, with the expectation of generating an income or profit, often through the purchase of assets like stocks, bonds, or real estate.