A Company Has Two Divisions,A and B,each Operated as a Profit

question 46

Multiple Choice

A company has two divisions,A and B,each operated as a profit center.Division A charges Division B $35 per unit (for each unit transferred to Division B) .Other data for Division A are as follows: Division A is planning to raise its transfer price to $50 per unit.Division B can purchase units at $40 per unit from outsiders,but doing so would idle Division A's facilities (now committed to producing units for Division B) ,Division A cannot increase its sales to outsiders.From the perspective of the company as a whole,from who should Division B acquire the units,assuming Division B's market is unaffected?

• A)Outside vendors.
• B)Division A,but only at the variable cost per unit.
• C)Division A,but only until fixed costs are covered,then should purchase from outside vendors.
• D)Division A,in spite of the increased transfer price.

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Definitions:

Aqueous Solution

A solution where water is the solvent.

Water

A transparent, tasteless, odorless, and nearly colorless chemical substance, composed of hydrogen and oxygen, vital for all known forms of life.

Simple Epithelium

A single layer of cells that forms the lining of various organs and structures within the body, involved in absorption, secretion, and filtration.

Simple epithelium

A single layer of cells that forms the lining of various organs and body cavities, involved in absorption, secretion, and filtration.