Answer the Following Questions Using the Information Below

question 52

Multiple Choice

Answer the following questions using the information below:
Calculate the Division operating income for the Artic Air Company which manufactures only one type of air conditioner and has two divisions, the Compressor Division, and the Assembly Division. The Compressor Division manufactures compressors for the Assembly Division, which completes the air conditioner and sells it to retailers. The Compressor Division "sells" compressors to the Assembly Division. The market price for the Assembly Division to purchase a compressor is $38.50. (Ignore changes in inventory.) The fixed costs for the Compressor Division are assumed to be the same over the range of 5,000-10,000 units. The fixed costs for the Assembly Division are assumed to be $7.50 per unit at 10,000 units.

-What is the transfer price per compressor from the Compressor Division to the Assembly Division if the method used to place a value on each compressor is 150% of variable costs?

• A)$40.88
• B)$38.50
• C)$4.50
• D)$36.38

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Definitions:

Complementary Goods

Goods or services that are frequently utilized in conjunction with each other, leading to a scenario where the desire for one boosts the desire for the other.

Substitute Goods

Products or services that can be used in place of each other because they satisfy similar customer needs or desires.

Blu-Ray Players

Devices designed to play Blu-ray discs, which provide high-definition video and have more storage capacity than traditional DVDs.

Supply Curve

A visual diagram that illustrates the connection between a product's price and the amount of the product that sellers are prepared to offer.