(Appendix 11A) Fregozo Products, Inc

question 36

Multiple Choice

(Appendix 11A) Fregozo Products, Inc., has a Connector Division that manufactures and sells a number of products, including a standard connector that could be used by another division in the company, the Transmission Division, in one of its products. Data concerning that connector appear below:
The Transmission Division is currently purchasing 8,000 of these connectors per year from an overseas supplier at a cost of $45 per connector.
-Assume that the Valve Division is selling all of the valves it can produce to outside customers.Also assume that $10 in variable expenses can be avoided on transfers within the company due to reduced shipping and selling costs.What should be the minimum acceptable transfer price for the valves from the standpoint of the Valve Division?

• A) $31 per unit
• B) $54 per unit
• C) $44 per unit
• D) $45 per unit

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Definitions:

Purchasing Price

The price at which an item or service is bought, including taxes and additional fees.

Third Party

An entity involved in a transaction or situation which is neither the buyer nor the seller, but may have an interest or role.

Real Expenditures

Spending adjusted for inflation, which reflects the actual purchasing power of money on goods and services, providing a more accurate measure of economic activity.

Medicare

A federal program in the United States that provides health insurance to people who are 65 or older, and to younger people with certain disabilities.