Division a Makes a Part with the Following Characteristics

question 39

Multiple Choice

Division A makes a part with the following characteristics:

Division B, another division of the same company, would like to purchase 5,000 units of the part each period from Division A. Division B is now purchasing these parts from an outside supplier at a price of $24 each.
-Suppose that Division A is operating at capacity and can sell all of its output to outside customers at its usual selling price.If Division A sells the parts to Division B at $24 per unit (Division B's outside price) ,what will be the effect on the operating income of company as a whole?

• A) Higher by $5,000 each period.
• B) Lower by $15,000 each period.
• C) Lower by $5,000 each period.
• D) There will be no change in the status of the company as a whole.

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Definitions:

Parties

in legal terms involve individuals, companies, or entities who are directly involved in a lawsuit or legal agreement.

Certify

To officially declare or verify that something is true, accurate, or meets a specific standard.

UCC

Stands for the Uniform Commercial Code, which is a comprehensive set of laws governing commercial transactions in the United States, including sales, leases, negotiable instruments, and secured transactions.

Sufficient Funds

A term indicating that an account has enough available money to cover transactions such as withdrawals, checks, or payments.