Martin Company's Records Reveal the Following: Variable Costs

question 149

Multiple Choice

Martin Company's records reveal the following: Variable costs:
The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.Assume Division X is working at full capacity; there is no excess capacity.Division Y can buy the component from an outside supplier for $32 per unit.What is the lowest transfer price per unit Division X should accept from Division Y for the component?

• A)$8 per unit
• B)$22 per unit
• C)$24 per unit
• D)$32 per unit

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Definitions:

Profit-Maximizing

A strategy or process by which a business seeks to generate the highest possible profit from its operations, often by adjusting prices, output, or production methods.

Marginal Cost

The increase in cost resulting from the production of an extra unit of a product or service.

Markup

The difference between the cost of a product or service and its selling price, expressed as a percentage of the cost.

Marginal Cost

The additional total expense incurred from producing one more unit of a product or service.