Division a Makes a Part That It Sells to Customers

question 197

Multiple Choice

Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost be unit would be $1 lower. What should be the lowest acceptable transfer price from the perspective of Division A?

• A) $40
• B) $38
• C) $30
• D) $29
• E) $10

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Definitions:

Human Expression

The process by which humans convey thoughts, feelings, and concepts through verbal or nonverbal means.

Innate

Inborn or natural characteristics and instincts not acquired or learned.

Social Motives

The driving forces behind people's engagement in social behavior, including needs for affiliation, achievement, and power.

Social Interactions

The process by which individuals act and react in relation to others, involving exchanges that are foundationally human and essential for the development of societies.