Hu Corporation Has Two Operating Divisions,A and B Division B Uses the Type of Product Produced by Division

question 77

Multiple Choice

Hu Corporation has two operating divisions,A and B.The following information is provided for Division A: $\begin{array}{|l|lr|}\hline \text { Unit selling price } & \$ & 200 \\\hline \text { Unit variable costs } & \$ & 120 \\\hline \text { Unit fixed costs } & \$ & 40 \\\hline\end{array}$ Division B uses the type of product produced by Division A and has approached Division A about buying the product internally.Division B is currently paying $180 to purchase the product from an outside source.If Division A sells internally it can save $5 per unit in variable costs.Assuming Division A is operating at capacity,what price should it charge Division B if the transfer is to be made?

• A) $115
• B) $195
• C) $125
• D) $200

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Definitions:

Profit

The financial gain obtained when the amount earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

GDP

Gross Domestic Product, the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

OEM

Original Equipment Manufacturer, referring to companies that produce parts or equipment that may be marketed by another manufacturer.

GNI

Gross National Income, which is the total domestic and foreign output claimed by residents of a country, including salaries, product earnings, and property income.