A Company Has Two Divisions,X and Y,each Operated as an Investment

question 54

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 whom 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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