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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Definitions:

Negligently Dropped

A term referring to carelessly losing or letting go of something, potentially leading to liability if it causes harm or loss.

Right of Recovery

The legal right to seek compensation or restitution for losses or damages suffered.

Breach of Contract

A situation where one or more parties fail to fulfill their obligations under a contract.

Rescind the Offer

Refers to the act of formally withdrawing an offer before it is accepted.