Division X Makes a Part That It Sells to Customers

question 197

Multiple Choice

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.What is the lowest transfer price Division X will accept?

• A)$50
• B)$49
• C)$46
• D)$30
• E)$20

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Definitions:

Assets

Resources owned by a person or company that have economic value or can provide future benefits, such as cash, property, or investments.

Equipment

Tools, machinery, or other necessary items for a particular purpose or activity.

Stockholders' Equity

The ownership interest of shareholders in a corporation, represented by the company's assets minus its liabilities.

Ownership Claim

A declaration or assertion of legal rights to possess and use property.