Answer the Following Question(s) Using the Information Below

question 112

Multiple Choice

Answer the following question(s) using the information below.
Beta Shoe Ltd. manufactures only one type of shoe and has two divisions, the Sole Division, and the Assembly Division. The Sole Division manufactures soles for the Assembly Division, which completes the shoe and sells it to retailers. The Sole Division "sells" soles to the Assembly Division. The market price for the Assembly Division to purchase a pair of soles is $20. (Ignore changes in inventory.) The fixed costs for the Sole Division are assumed to be the same over the range of 40,000-100,000 units. The fixed costs for the Assembly Division are assumed to be $7 per pair at 100,000 units.
Sole's costs per pair of soles are:
Assembly's costs per completed pair of shoes are:

-What is the transfer price per pair of shoes from the Sole Division to the Assembly Division per pair of soles if the transfer price per pair of soles is 125% of full costs?

• A) $10.00
• B) $12.50
• C) $11.25
• D) $20.00
• E) $8.75

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Definitions:

Crossover

In genetics, the exchange of genetic material between chromosomes during meiosis; in other fields, it refers to a point where two or more different categories or entities meet.

Fixed Costs

Expenses that do not change with the level of production or business activity, such as rent, salaries, and insurance premiums.

Variable Cost

Costs that vary directly with the level of production or sales volume, such as materials and labor.

Theory of Constraints

A management approach that focuses on identifying and managing the most limiting factor (constraint) that stands in the way of achieving a goal.