The West and East Divisions Are Divisions in the Same

question 61

Multiple Choice

The West and East Divisions are divisions in the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $448 per unit.The cost data pertaining to the part is supplied by the West Division:
$\begin{array}{ll}\text { Direct materials }&\$136\\\text { Direct labor } & 200 \\\text { Variable overhead } & 40 \\\text { Fixed overhead } & 42\end{array}$
If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.West Division normally sells the part outside the company for $400 per unit.What is the minimum transfer price per unit that West Division should charge East Division?

• A) $376
• B) $390
• C) $400
• D) $448

---

Definitions:

Educational Qualifications

The formal certifications achieved through schooling that validate an individual's level of education or specialized training.

Technical Skills

Manager’s ability to understand and use techniques, knowledge, and tools and equipment of a specific discipline or department.

Surgical Intern

A medical graduate in the first year of residency training, primarily focused on gaining practical experience in surgery.

Microsurgeries

Surgical procedures that are performed on very small structures, often with the aid of a microscope or other magnifying equipment.