Use the Information Below to Answer the Following Question(s)

question 60

Multiple Choice

Use the information below to answer the following question(s) .The Burnaby Division of Columbia Ltd.produces and sells component parts.Its variable costs per unit are $80 for direct materials, $32 for direct labour and $18 for variable factory overhead.It currently can sell it components on the outside market at a price of $165/unit.Fixed overhead costs are $22 per unit based on a denominator volume of 180,000 units.
-The Surrey Division of Columbia Ltd.has approached the Burnaby Division and requested that it supply 25,000 units of the component at a transfer price of $150.The Burnaby Division will save $3 per unit of direct materials costs for the components manufactured for the Surrey Division.Assuming Burnaby Division has no idle capacity, what is the minimum transfer price the Burnaby Division should agree to accept?

• A)$165
• B)$150
• C)$162
• D)$130
• E)$127

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Definitions:

Discount

A discount represents a reduction from the full price or value of goods, services, financial instruments, or the present value of future cash flows.

Safety Stock

Safety stock is additional inventory held to prevent stockouts due to uncertainties in demand or supply.

Inventory Level

The quantity of goods and materials on hand in a business' inventory at any given time.

Lead Time

The period between the initiation of a process and its completion, especially in manufacturing or project planning.