(Appendix 11A) Division S of Kracker Company Makes a Part

question 20

Multiple Choice

(Appendix 11A) Division S of Kracker Company makes a part that it sells to other companies. Data on that part appear below:
Division B, another division of Kracker Company, presently is purchasing 10,000 units of a similar product each period from an outside supplier for $28 per unit, but would like to begin purchasing from Division S.
-Suppose that Division S has ample idle capacity to handle all of Division B's needs without any increase in fixed costs or cutting into sales to outside customers.If Division S refuses to accept a transfer price of $28 or less and Division B continues to buy from the outside supplier,the company as a whole will:

• A) gain $20,000 in potential profit.
• B) lose $60,000 in potential profit.
• C) lose $70,000 in potential profit.
• D) lose $20,000 in potential profit.

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Definitions:

Exponential Growth

A pattern of increase where a quantity grows at a rate proportional to its current size, resulting in a rapid escalation over time.

Natural Increase

Population growth measured as the difference between births and deaths in a given population, without considering migration.

Societal Institution

Fundamental social structures and arrangements within a society that order and normalize the behavior of its members.

Economy

The system of production, distribution, and consumption of goods and services within a particular country or region, influencing wealth and standard of living.