Corrugated, Inc -Refer to the Figure

question 65

Multiple Choice

Corrugated, Inc. has many divisions that are evaluated on the basis of ROI. One division, the Box Division, makes boxes. The Candy Division makes candy and needs 50,000 boxes per year. The Box Division incurs the following costs for one box:
The Box Division has capacity to make 500,000 boxes per year. The Candy Division currently buys its boxes from an outside supplier for $1.40 each (the same price that the Box Division receives) .
$$\begin{array} { l r } \text { Direct materials } & \$ 0.20 \\\text { Direct labour } & 0.70 \\\text { Variable overhead } & 0.10 \\\text { Fixed overhead } & 0.23 \\\text { Total } & \$ 1.23\end{array}$$
-Refer to the Figure.Assume that Corrugated,Inc.mandates that any transfers take place at full manufacturing cost.What would be the transfer price if the Box Division transferred boxes to the Candy Division?

• A)$0.90
• B)$1.00
• C)$1.23
• D)$1.40

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Definitions:

Substitution Effect

The change in demand for a good that results from a change in its price, making consumers more likely to purchase more of a less expensive alternative or less of a more expensive one.

Demand Curves

Graphs showing the relationship between the price of a good and the quantity demanded by consumers, typically downward-sloping.

Marginal Utility Data

Information regarding the additional satisfaction or use received by consuming one more unit of a good or service.

Prices

The monetary value expected, necessary, or allocated for the purchase of something.