An Appropriate Transfer Price Between Two Divisions of the Fathom

question 1

Multiple Choice

An appropriate transfer price between two divisions of The Fathom Company can be determined from the following data: (CIA adapted)
$$\begin{array} { | l | r | } \hline \text { Fabricating Division } & \\\hline \text { Market price of } & \$ 50 \\\text { subassembly } & \$ 20 \\\hline \text { Variable cost of } \\\text { subassembly } & 1,000 \\\hline \text { Excess capacity (in units) } & \\\hline \text { Assembling Division } & 900 \\\hline \text { Number of units needed } & \$ \\\hline\end{array}$$ What is the natural bargaining range for the two divisions?

• A) Between $20 and $50.
• B) Between $50 and $70.
• C) Any amount less than $50.
• D) $50 is the only acceptable transfer price.

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