(Appendix 11A)Division X Makes a Part That It Sells to Customers

question 159

Multiple Choice

(Appendix 11A) Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:
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:

Marginal Social Costs

The total cost to society of producing one extra unit of a good or service, including both private costs and any externalities.

Property Rights

Legal rights to use, derive benefit from, and transfer property.

Negative Externality

An adverse effect or cost suffered by a third party due to an economic transaction they were not involved in.

Government Standards

Official requirements established by governmental bodies that products, services, or processes must meet, often related to quality, safety, or compatibility.