Terrapin Computing Systems Terrapin Computing Systems Manufactures and Sells Various Computer Products and Computer

question 34

Multiple Choice

Terrapin Computing Systems
Terrapin Computing Systems manufactures and sells various computer products and has two decentralized divisions: (1) Production and (2) Marketing.The Marketing Division has always purchased a particular large tower case from Production at $58 per unit.The Production Division is considering raising the price to $75 per unit.The Production Division's costs related to the large tower case production is as follows:

The Marketing Division handles the promotion and distribution of the large tower case purchases from the Production Division and sells each large tower case for $100.Marketing Division incurs monthly fixed costs of $5,000.Marketing Division sells 2,000 units per month.Marketing Division can buy the same large tower case from outside suppliers for $75.
Refer to Terrapin Computing Systems.If the Marketing Division purchases the large tower case from outside suppliers,the facilities the Production Division uses to manufacture the large tower case would remain idle.The Production Division is operating below capacity because of weak global demand for the product.
What should be the large tower case transfer price between the Production Division and Marketing Division in order for Terrapin to optimize profits?

• A)$ 55
• B)$ 58
• C)$ 75
• D)$100

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Definitions:

Freewheel

Freewheel refers to a mechanism in a bicycle, motorcycle, or vehicle allowing the wheels to rotate freely without engaging the drivetrain, especially when moving downhill or when not pedaling.

Lock-up Phase

The lock-up phase refers to a stage in automatic transmission where the torque converter locks, directly connecting the engine to the transmission to improve efficiency.

Vortex Flow

The rotational movement of a fluid, often characterized by a spiral pattern of flow lines.

Full Stall

A condition where an engine stops running or is unable to produce power under load, sometimes used in reference to torque converter performance in vehicles.