In the Ambros Company, Division a Has a Product That

question 57

Multiple Choice

In the Ambros Company, Division A has a product that can be sold either to outside customers or to Division B. Information about these divisions is given below:
$\begin{array}{lrr}\text { Division A: }&\text { Case } 1&\text { Case } 2\\\text { Capacity in units } & 100,000 & 100,000 \\\text { Number of units sold externally } & 100,000 & 60,000 \\\text { Market selling price } & \$ 90 & \$ 75 \\\text { Variable costs per unit } & 73 & 58 \\\text { Fixed costs per unit based on capacity } & 10 & 10\\\\\text { Division B: }\\\text {Number of units needed for production}&40,000&40,000\\ \text {Purchase price per unit from external supplier}&\$86&\$74\end{array}$

-Refer to the figure.The company uses the opportunity cost approach to transfer pricing.What is the minimum transfer price in Case 2?

• A)$58
• B)$68
• C)$74
• D)$75

---

Definitions:

Random Variable

A variable with an uncertain future value.

Uncertain

The state of having incomplete knowledge or information, leading to unpredictability in outcomes and decision-making.

Economics

The social science that studies the production, distribution, and consumption of goods and services.

Total Utility

The total satisfaction or pleasure a person derives from consuming a specific quantity of goods or services.