McKenna's Florida Division Is Currently Purchasing a Part from an Outside

question 75

Multiple Choice

McKenna's Florida Division is currently purchasing a part from an outside supplier. The company's Alabama Division, which has excess capacity, makes and sells this part for external customers at a variable cost of $22 and a selling price of $34. If Alabama begins sales to Florida, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $4. If sales to outsiders will not be affected, Alabama would establish a transfer price of:

• A) $18.
• B) $22.
• C) $30.
• D) $34.
• E) None of the other answers are correct.

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Definitions:

Critical Item

An essential element or factor that is crucial for the successful completion of a task or the proper functioning of a system.

Noncritical Item

An item or aspect that, though part of a system or process, is not essential to its fundamental operation or success.

Steam Sterilization

A method of sterilization using saturated steam under pressure to eliminate all forms of microbial life, including spores.

Exogenous Microorganisms

Microbes that originate from outside an organism's body and can potentially cause harm.