Division X Makes a Part That It Sells to Customers

question 172

Multiple Choice

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:
$\begin{array}{lr}\text { Selling Price to Outside Customers } & \$ 75 \\\text { Variable Cost per Unit } & \$ 50 \\\text { Total Fixed Costs } & \$ 400,000 \\\text { Capacity in Units } & 25,000\end{array}$
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) $16.
• B) $50.
• C) $66.
• D) $75.

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