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

question 86

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.The Production Division is operating at maximum capacity because of strong worldwide demand for the product and the Production Division can sell all it produces to outside customers for $75 per large tower case.
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:

Negative Externalities

Costs suffered by a third party as a result of an economic transaction.

Government Tax

is a compulsory financial charge or levy imposed by a government on individuals or corporations to fund public expenditures.

Allocation of Resources

The process of distributing available resources among various uses or projects in an effort to achieve strategic goals and efficiency.

Anytown

A hypothetical or generic place used as a stand-in name for any town or city in discussions or examples.