Division X Makes a Part That It Sells to Customers

question 53

Multiple Choice

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:
$\begin{array}{|l|r|}\hline \text { Selling Price to Outside Customers } & \$ 50 \\\hline \text { Variable cost per Unit } & \$ 30 \\\hline \text { Total Fixed Costs } & \$ 400,000 \\\hline \text { Capacity in Units } & 25,000 \\\hline\end{array}$
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 $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales.According to the transfer pricing formula,what is the lower limit on the transfer price?

• A) $30.
• B) $46.
• C) $49.
• D) $50.

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Definitions:

Biomedicine

The branch of medical science that applies biological and physiological principles to clinical practice, often including the diagnosis, treatment, and prevention of disease.

Cognitive-behavioral

A type of psychotherapeutic treatment that helps patients understand the thoughts and feelings that influence behaviors.

Interpersonal Psychotherapies

A time-limited, focused treatment approach designed to improve interpersonal relationships and psychological symptoms.

Psychiatric Medication Use

The practice of utilizing pharmaceutical drugs to manage or treat mental health disorders.