Signature Scents Has Two Divisions: the Cologne Division and the Bottle

question 80

Multiple Choice

Signature Scents has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost is $2, shipping cost is $0.10, and the external sales price is $3. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for $2.60.
The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be:

• A) $2.00.
• B) $2.10.
• C) $2.60.
• D) $2.90.
• E) $3.00.

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Definitions:

Probability

A measure of the likelihood of an event occurring, expressed as a number between 0 and 1.

Actuarially Fair Rates

Insurance rates that are set based upon a fair assessment of the expected risks and payouts, ensuring no expected profit or loss for the insurer.

Insurance Premiums

Payments made regularly to an insurance company in exchange for coverage, ensuring financial protection against specified risks.

Administrative Costs

Expenses that are not directly tied to specific business operations, including office expenses, salaries of non-production employees, and legal fees.