Division a Produces a Part with the Following Characteristics Division B, Another Division in the Company, Would Like to

question 124

Multiple Choice

Division A produces a part with the following characteristics: $\begin{array}{llr} \text { Capacity in units } &50,000\\ \text { Selling price per unit } &\$30\\ \text { Variable cost per unit } &\$18\\ \text { Fixed cost per unit} &\$3\\\end{array}$
Division B, another division in the company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at $28 per unit. If Division A sells to Division B, $1 in variable costs can be avoided. Suppose Division A is currently operating at capacity and can sell all of the units it produces on the outside market for its usual selling price. From the point of view of Division A, any sales to Division B should be priced no lower than:

• A) $27
• B) $20
• C) $29
• D) $28
• E) $21

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Definitions:

Tape Wound

Refers to a type of core used in transformers and inductors, made by winding a tape of magnetic material around a core, to enhance magnetic properties.

Secondary Winding

The winding of a transformer to which a load is connected.

Output Winding

The coil or winding in an electrical machine from which the output is derived.

Primary

Refers to the first or main part of a system or device, such as the primary winding in a transformer which receives the initial electrical energy.