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

question 73

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 $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:

Cycle Time

The total time from the beginning to the end of a process, indicating the speed of production and process efficiency.

Workstation

A specific area or desk equipped with the necessary tools and equipment for an individual to complete their job tasks.

Retail Layout

The strategic arrangement of physical space in retail stores to optimize customer experience and sales.

Profitability Per Square Foot

A financial metric used in retail and real estate to assess how much profit is being generated for each square foot of sales or rental space.