Division X Makes a Part That It Sells to Customers

question 56

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 $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales.According to the formula in the text,what is the lowest acceptable transfer price from the standpoint of the selling division?

• A)$50
• B)$49
• C)$46
• D)$30
• E)$20

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Definitions:

Functional Fixedness

A cognitive bias that limits a person to using an object only in the way it is traditionally used, hindering creativity and problem-solving.

Mental Set

A framework or mindset that shapes an individual's approach to problem-solving and can sometimes limit the exploration of alternative solutions.

Prefrontal Cortex

The part of the brain located at the front of the frontal lobe, associated with decision making, cognitive behavior, and personality expression.

Problem Structuring

Involves identifying the key elements and relationships in a problem to better understand and address it.