(Appendix 11A) Wetherald Products, Inc

question 90

Multiple Choice

(Appendix 11A) Wetherald Products, Inc., has a Pump Division that manufactures and sells a number of products, including a standard pump that could be used by another division in the company, the Pool Products Division, in one of its products. Data concerning that pump appear below:
The Pool Products Division is currently purchasing 4,000 of these pumps per year from an overseas supplier at a cost of $74 per pump.
-Assume that the Valve Division is selling all of the valves it can produce to outside customers.Also assume that $5 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) $77 per unit
• B) $74 per unit
• C) $59 per unit
• D) $82 per unit

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Definitions:

Purely Competitive Market

A market structure characterized by many buyers and sellers, homogeneous products, and free entry and exit, leading to price taking behavior.

Marginal Cost

Marginal cost is the cost incurred by producing one additional unit of a product or service.

AVC

Average Variable Cost, which is the total variable costs (costs that change with the level of output) divided by the quantity of output produced.

Shut Down

The temporary or permanent cessation of operations, often referring to business closure due to economic events or strategic decisions.