Division X Makes a Part That It Sells to Customers

question 156

Multiple Choice

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:
$\begin{array}{|l|r|}\hline \text { Selling Price to Outside Customers } & \$ 75 \\\hline \text { Variable Cost per Unit } & \$ 50 \\\hline \text { Total Fixed Costs } & \$ 400,000 \\\hline \text { Capacity in Units } & 25,000 \\\hline\end{array}$
Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X can already sell all of the units it can produce on the outside market.What should be the lowest acceptable transfer price from the perspective of Division X?

• A) $16.
• B) $50.
• C) $66.
• D) $75.

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Definitions:

Financial Data

Financial data encompasses information on a company's financial performance, including income statements, balance sheets, cash flow statements, and ratios, used for analysis and decision-making.

Year

A period of approximately 365 days used for calculating time in most of the world, divided into 12 months.

Working Capital

Current assets minus current liabilities, indicating the liquidity of a business and its ability to meet short-term obligations.

Current Ratio

An indicator of how well a company can fulfill its short-term financial liabilities using assets that are readily convertible to cash.