Use the Information Below to Answer the Following Question(s)

question 138

Multiple Choice

Use the information below to answer the following question(s) .The Burnaby Division of Columbia Ltd.produces and sells component parts.Its variable costs per unit are $80 for direct materials, $32 for direct labour and $18 for variable factory overhead.It currently can sell it components on the outside market at a price of $165/unit.Fixed overhead costs are $22 per unit based on a denominator volume of 180,000 units.
-The Surrey Division of Columbia Ltd.has approached the Burnaby Division and requested that it supply 25,000 units of the component.The Burnaby Division will save $3 per unit of direct materials costs for the components manufactured for the Surrey Division.Assuming Burnaby Division has idle capacity, what is the minimum transfer price the Burnaby Division should agree to accept?

• A)$165
• B)$150
• C)$162
• D)$130
• E)$127

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Definitions:

Laissez-Faire Economies

Economic systems in which transactions between private parties are free from government intervention such as regulations, privileges, tariffs, and subsidies.

Command Economies

Economic systems where government decisions rather than market mechanisms primarily dictate production, allocation, and prices of goods and services.

Laissez-Faire Economy

A market system in which private-party transactions are conducted without the interference of government actions like regulations, privileges, tariffs, and subsidies.

Marginal Tax Rate

The tax rate paid on the next dollar earned.