Figure 2 Klaehn Industries Is a Decentralized Company That Evaluates Its Divisions

question 34

Multiple Choice

Figure 2
Klaehn Industries is a decentralized company that evaluates its divisions based on ROI. The Fahl Division has the capacity to make 1,000 units of a component. The Fahl Division's variable costs are £40 per unit.
The Melton Division can use the component in one of its products. The Melton Division would incur £50 of variable costs to convert the component into its own product that sells for £160.
-Refer to Figure 2. Assume the Fahl Division can sell all that it produces for £100 each. The Melton Division needs 100 units. What is the correct transfer price?

• A) £120
• B) £110
• C) £100
• D) £60

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Definitions:

Quantity Supplied

The quantity of a product or service that sellers are prepared and capable of offering for sale at a specific price.

Equilibrium Price

The price at which the quantity of goods supplied equals the quantity of goods demanded in a market, leading to market stability.

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the equilibrium price.

Demand Equation

A mathematical representation that describes the relationship between the quantity of a good or service demanded and its price, along with other factors like income and prices of related goods.