The Following Information Is Available for the Two Divisions of MAC

question 118

Essay

The following information is available for the two divisions of MAC Co.: $$\begin{array} { | l | r | } \hline \text { Division } A & \\\hline \text { Selling price to outside market } & \$ 55 \\\hline \text { Standard unit-level costs } & 35 \\\hline \text { Dwision B } & \\\hline \text { Selling price of finished product } &\$95 \\\hline \text { Standard unit-level costs for Division B } &2 5 \\\hline\end{array}$$
Division A has no excess production capacity.Required:
1)In order to ensure the best use of the productive capacity of A,what transfer price should be set by Division A and what effect does this transfer price have on the overall margin for the company? Is the answer goal congruent under the general rule?
2)Should Division B accept a special order for its product if the selling price is reduced to $70.Use your answer from #1 and explain.3)Would your answer to #2 change if Division A had excess capacity? Explain.

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Definitions:

External Iliac Vein

A large vein in the pelvic region that carries deoxygenated blood from the lower limbs back to the heart.

Iliac Vein

A vein in the pelvis that carries blood from the lower limbs and the pelvis back to the heart.

Posterior Vena Cava

Also known as the inferior vena cava, it is a large vein that carries deoxygenated blood from the lower half of the body to the heart.

Superior Vena Cava

A large vein that carries deoxygenated blood from the upper body to the heart.