A Company Has Two Divisions, X and Y, Each Operated

question 146

Multiple Choice

A company has two divisions, X and Y, each operated as an investment center. X charges Y $55 per unit for each unit transferred to Y. Other data are: X is planning to raise its transfer price to $65 per unit. Division Y can purchase units at $50 each from outsiders, but doing so would idle X's facilities now committed to producing units for Y. Division X cannot increase its sales to outsiders. From the perspective of the short-term profit position of the company as a whole, from which source should Division Y acquire the units?

• A)Outside vendors.
• B)Division X, but only at the variable cost per unit.
• C)Division X, but only until fixed costs are covered, then should purchase from outside vendors.
• D)Division X, in spite of the increased transfer price.
• E)It is not possible to tell without additional information.

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Definitions:

σ

The symbol for standard deviation in statistics, representing the dispersion or variability of a set of data points.

Normally Distributed

A type of distribution where data points are symmetrically distributed around the mean, forming a bell-shaped curve.

Exponential Distribution

A continuous probability distribution used to model the time between events in a Poisson point process, characterized by a constant mean rate or rate parameter.

Upper Limit

The upper limit refers to the highest value or boundary that a certain data range, interval, or measurement can reach.