(Appendix 11A) Two of the Decentralized Divisions of Gamberi Electronics

question 65

Multiple Choice

(Appendix 11A) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics Division and the Components Division. The Plastics Division sells molded parts to both the Components Division and to customers outside the corporation.
-Assume that the Plastics Division is currently operating at full capacity.Also assume that the Components Division wants to increase the number of parts it purchases from Plastics.In order to maintain its current level of profitability,the Plastics Division should not accept any transfer price on these additional parts that is below the:

• A) variable cost of the additional parts.
• B) full (absorption) cost of the additional parts.
• C) variable cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.
• D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.

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Definitions:

Substantial Impairment

A significant reduction or weakening in strength, value, or quality of an asset or entity's ability to perform its intended function.

Nonconforming

Refers to goods that fail to meet the specifications or requirements set forth in a contract.

Perfect Tender Rule

A legal principle requiring sellers to deliver goods to buyers exactly as specified in their contract, with no deviations.

Course of Performance

A legal concept referring to the conduct between parties in the execution of a contract, helping to interpret or modify the contract's terms.