Division X Makes a Part That It Sells to Customers

question 75

Multiple Choice

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below: Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X can already sell all of the units it can produce on the outside market.What should be the lowest acceptable transfer price from the perspective of Division X?

• A)$75
• B)$66
• C)$16
• D)$50
• E)$25

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Definitions:

Birthday Rule

A means to identify primary responsibility in insurance coverage; identifies the primary insurance carrier when children have coverage through more than one parent. The insurance of the parent with the birthday earliest in the year, month and day only, is identified as the primary insurer. If both parents have the same birth date, the policy that has been in effect the longest is the primary carrier.

Custody

The legal authority or responsibility to care for someone or something, often used in relation to child custody in legal contexts.

Primary

Refers to the first or most significant condition, factor, or level in a series or system.

Medicare

A federal health insurance program in the United States primarily for people who are 65 or older, as well as for certain younger people with disabilities or specific diseases.