Division X Makes a Part That It Sells to Customers

question 132

Multiple Choice

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:
$$\begin{array} { | l | r | } \hline \text { Selling price to outside customers } & \$ 50 \\\hline \text { Variable cost per unit } & \$ 30 \\\hline \text { Total fixed costs } & \$ 400,000 \\\hline \text { Capacity in units } & 25,000 \\\hline\end{array}$$ Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X can sell all of the units it makes to outside customers.What is the lowest acceptable transfer price from the standpoint of the selling division?

• A) $50.
• B) $49.
• C) $46.
• D) $30.

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Permanent Underclass

A segment of the population that experiences persistent poverty and social disadvantages, making upward mobility difficult.