Green Auto's Northern Division Is Currently Purchasing a Part from an Outside

question 81

Multiple Choice

Green Auto's Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which has no excess capacity, makes and sells this part for external customers at a variable cost of $19 and a selling price of $31. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $3. On the basis of this information, Southern would establish a transfer price of:

• A) $16.
• B) $19.
• C) $28.
• D) $31.
• E) None of the other answers are correct.