Elite Inchas Many Divisions That Are Evaluated on the Basis of of Return

question 38

Multiple Choice

Elite Inc.has many divisions that are evaluated on the basis of return on investment (ROI) .One division, Beta, makes boxes.A second division, Lambda, makes chocolates and needs 90,000 boxes per year.Beta incurs the following costs for one box:

Beta has the capacity to make 720,000 boxes per year.Lambda currently buys its boxes from an outside supplier for $2.00 each (the same price that Beta receives) .
- Assume that Elite Inc.allows division managers to negotiate transfer price.Beta is producing 650,000 boxes.If Beta and Lambda agree to transfer boxes, what is the floor of the bargaining range and which division sets it?

• A) $1.80; Beta
• B) $1.48; Beta
• C) $1.48; Lambda
• D) $1.35; Lambda
• E) $1.60; Beta

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Definitions:

Patent Rights

Legal rights granted to an inventor or assignee to exclusively make, use, or sell an invention for a certain period of time.

Barrier to Entry

Factors that make it difficult for new firms to enter an industry, including high startup costs, stringent regulations, and established brand loyalty.

Homogeneous Product

A good or service that is considered identical or uniform across different sellers, making it difficult to distinguish based on attributes other than price.

Gasoline

A volatile, flammable liquid derived from petroleum, primarily used as fuel in internal combustion engines.