Division South Does Not Have Excess Capacity to Produce Product

question 7

Multiple Choice

Division South does not have excess capacity to produce Product Y.The division can sell Product Y for $10 per unit outside the company.Variable costs are $6 per unit.Division North wants to purchase Product Y from Division South to use in Product ZZ.The selling price of Product ZZ is $25 per unit and variable costs to finish the product after the transfer are $12 per unit.An outside supplier will sell Product Y for $12 per unit.What is the maximum price Division North will pay for Product Y?

• A) $12 per unit
• B) $13 per unit
• C) $25 per unit
• D) none of the above

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Definitions:

Managerial Purposes

Utilized to describe the actions or decisions made by managers in running a company, often aimed at achieving strategic goals and maintaining operational efficiency.

Accounting Income

It is the income reported by a company as per the accounting principles, including all revenues minus expenses, excluding any unrealized gains or losses.

Adjustments

Modifications made to financial statements or data to correct inaccuracies or allocate revenues and expenses.

Free Cash Flow

The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets, indicating the financial health and profitability of a company.