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:

Auditory Cortex

The region of the brain responsible for processing auditory information, located in the temporal lobe.

Temporal Lobes

Regions of the brain located on each side of the head above the ears, important for processing auditory information and involved in memory and emotion.

Regions

Defined areas or segments of space, often distinguished by certain characteristics or features, whether geographical, political, or anatomical.

Motor Cortex

A region of the cerebral cortex involved in planning, controlling, and executing voluntary movements.