Mandolin Company Has Two Divisions

question 10

Multiple Choice

Mandolin Company has two divisions. Division A is interested in purchasing 10,000 units from Division B. Capacity is available for Division B to produce these units. The per unit market price is $30 per unit, with a variable cost of $17. The manager of Division A has offered to purchase the units at $15 per unit. In an effort to make this transfer price beneficial for the company as a whole, what is the range of prices that should be used during negotiations between the two divisions?

• A) $15 to $30
• B) $15 to $17
• C) over $30
• D) $17 to $30

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Definitions:

Comparative Advantage

The ability of an individual, firm, or country to produce a good or service at a lower opportunity cost than competitors, underpinning the basis for trade.

World Price

The price of a good or service on the international market, shaped by the global forces of supply and demand.

Domestic Price

The cost of products or services in a country, affected by domestic demand and supply factors.

Tariff

A tax or duty to be paid on a particular class of imports or exports, often used as a tool for trade policy.