The Pen and Pencil Divisions Are Part of the Same

question 99

Multiple Choice

The Pen and Pencil Divisions are part of the same company. Currently the Pencil Division buys a part ingredient from Pen for $96. The Pen Division wants to increase the price of the part it sells to Pencil by $24 to $120. The manager of Pencil has stated that it cannot afford to go that high, as it will decrease the division's profit to near zero. Pencil can buy the part from an outside supplier for $112. The cost data for the Pen Division is as follows:
If Pen ceases to produce the parts for Pencil, it will be able to avoid one-third of the fixed manufacturing overhead. The Pen Division has excess capacity but no alternative uses for its facilities.
-What is the minimum transfer price that should be charged?

• A) $120.00
• B) $112.00
• C) $97.20
• D) $94.00

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Definitions:

Psychopathy

A personality disorder characterized by persistent antisocial behavior, impaired empathy, and often, bold, disinhibited, and egotistical traits.

Egocentricity

The tendency to view everything in relation to oneself, often neglecting the perspectives or experiences of others.

Narcissistic

Relating to narcissism, a personality trait characterized by a grandiose sense of self-importance and a lack of empathy for others.

Treatment Efficacy

Evidence that a treatment has been shown to work under research conditions that emphasized internal validity.