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

question 73

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


Definitions:

Heteronomous Morality

The stage in moral development where children view rules as fixed and unchangeable, usually enforced by authority figures.

Morality Stage

A phase in psychological development, often discussed in the context of moral understanding and behavior, as individuals learn to distinguish right from wrong.

Rules

Explicit or understood regulations or principles governing conduct or procedure within a particular area or activity.

Authority

The power or right to give orders, make decisions, and enforce obedience.

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