The South and North Divisions Are Divisions in the Same

question 10

Multiple Choice

The South and North Divisions are divisions in the same company.Currently the North Division buys a part from South Division for $384 per unit.The South Division wants to increase the price of the part it sells to North Division by $96 to $480.The manager of the North Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the North Division can buy the part from an outside supplier for $448 per unit.The cost data pertaining to the part is supplied by the South Division:
$\begin{array}{ll}\text { Direct materials }&\$136.00\\\text { Direct labor } & 200.00 \\\text { Variable overhead } & 40.00 \\\text { Fiyed orrerhead } & 38.40\end{array}$
If South Division does not produce the parts for the North Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The South Division has excess capacity but no alternative uses for the facilities.North Division will sell the finished product with the part (from South Division) for $1,000 after incurring additional processing costs of $600.What is the maximum transfer price per unit that North Division should pay for the part?

• A) $388.80
• B) $400.00
• C) $448.00
• D) $480.00

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Definitions:

Business Management

The administration of an organization’s resources, operations, and strategies to achieve its objectives and maximize its efficiency and profitability.

Stakeholders

Parties with an interest or concern in a business or project, including investors, employees, customers, and suppliers.

For-Profit Corporations

Business organizations that are intended to operate for profit, distributing earnings to shareholders and focusing on growth and revenue.

Nonprofit Organizations

Entities that are dedicated to furthering a particular social cause or advocating for a shared point of view, without the primary aim of distributing profits to members or leaders.