(Appendix 11A) Division a of Tripper Company Produces a Part

question 82

Multiple Choice

(Appendix 11A) Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow:
Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $38 per unit. If Division A sells to Division B, $1 in variable costs can be avoided.
-Assume that Division A has ample idle capacity to handle all of Division B's needs without any increase in fixed costs and without cutting into outside sales.According to the formula in the text,what is the lowest acceptable transfer price from the viewpoint of the selling division?

• A) $40 per unit
• B) $39 per unit
• C) $28 per unit
• D) $27 per unit

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Definitions:

Comparative Advantage

The ability of an entity to produce a good or offer a service at a lower opportunity cost than other entities, leading to more efficient trade possibilities.

Production

Production refers to the process of combining various material inputs and immaterial inputs (plans, knowledge) to make something for consumption (output).

Coolers

Devices or containers used to keep items cool or cold, often used for food and beverages.

Radios

Electronic devices designed for receiving and sometimes transmitting sound broadcasts via electromagnetic waves.