The Vega Division of Ace Company Makes Wheels That Can $\$ 42$

question 66

Multiple Choice

The Vega Division of Ace Company makes wheels that can either be sold to outside customers or transferred to the Walsh Division of Ace Company. Last month, the Walsh Division bought all 4,000 of its wheels from the Vega Division for $\$ 42$ each. The following data are available from last month's operations for the Vega Division:
$\begin{array}{|l|r|}\hline \text { Capacity } & 12,000 \text { wheels } \\\hline \text { Selling Price per Wheel to Outside Customers } & \$ 45 \\\hline \text { Variable Costs per Wheel Sold to Outside Customers } & \$ 30 \\\hline\end{array}$
If the Vega Division sells wheels to the Walsh Division, Vega can avoid \$2 per wheel in sales commissions. An outside supplier has offered to supply wheels to the Walsh Division for $\$ 41$ each.
- Suppose that the Vega Division has ample idle capacity so that transfers to the Walsh Division would not cut into its sales to outside customers.What should be the lowest acceptable transfer price from the perspective of the Vega Division?

• A) $28.
• B) $30.
• C) $42.
• D) $45.

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Definitions:

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, widely used in finance to assess the volatility of an investment.

Standard Deviation

A statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance.

Asset A

A hypothetical or specific item of economic value owned by an individual or corporation, expected to provide future benefit.

Risk-Free Rate

is the theoretical return on an investment with no risk of financial loss, typically represented by the yield on government securities such as U.S. Treasury bills.