Avery Corporation Has Two Divisions,A and B,which Are Both Organized

question 64

Multiple Choice

Avery Corporation has two divisions,A and B,which are both organized as profit centers;Division A produces and sells widgets to Division B and to outside customers.Division A has total costs of $35,$20 of which are variable.Division A is operating significantly below capacity and sells the widgets for $50.Division B has received an offer from an outsider vendor to supply all the widgets it needs (20,000 widgets) at a cost of $45.The manager of Division B is considering the offer but wants to approach Division A first.What is the maximum transfer price from Division A to Division B?

• A)$20.
• B)$35.
• C)$45.
• D)$50.

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Definitions:

Treasury Stock

Shares that were issued and later reacquired by the company, reducing the amount of outstanding stock.

Par Common Stock

The nominal value assigned to share of common stock, as specified in the corporate charter, which represents the minimum price shares can be issued.

Cost Method

An accounting method used to value investments, where the investment is recorded at its acquisition cost without recognizing any changes in market value.

Stock Dividend

A company's distribution of extra shares to its shareholders, as an alternative to cash payouts.