Estes Company Has Two Operating Divisions,A and B $\begin{array}{lrr} \text {Unit selling price } &\$350\\ \text { Unit variable costs} &\$200\\ \text { Unit fixed costs} &\$70\\\end{array}$

question 63

Multiple Choice

Estes Company has two operating divisions,A and B.The following information is provided for Division A: $\begin{array}{lrr} \text {Unit selling price } &\$350\\ \text { Unit variable costs} &\$200\\ \text { Unit fixed costs} &\$70\\\end{array}$
Division B uses the type of product produced by Division A and has approached Division A about buying the product internally.Division B is currently paying $300 to purchase the product from an outside source.If Division A sells internally,it can save $10 per unit in variable costs.Assuming that Division A has sufficient excess capacity to produce all of the units requested by Division B,which of the following is the lowest price Division A should consider for the transfer?

• A) $300
• B) $190
• C) $260
• D) $250

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Definitions:

Incentive

Something that motivates or encourages someone to take a particular action.

Motive

A psychological feature that arouses an organism to action toward a desired goal; the reason for the action.

Drive

An innate, biologically determined urge to attain a goal or satisfy a need.

Ghrelin Protein

A hormone produced mainly by the stomach that stimulates appetite and signals the brain to increase food intake.