Division D Has Asked Division C of the Same Company

question 48

Multiple Choice

Division D has asked Division C of the same company to supply it with 4,000 units of part L763 this year to use in one of products. Division D has received a bid from an outside supplier for the parts at a price of £26.00 per unit. Division C has the capacity to produce 15,000 units of part L763 per year. Division C expects to sell 12,000 units of part L763 to outside customers this year at a price of £29.00 per unit. To fill the order from Division D, Division C would have to cut back its sales to outside customers. Division C produces part L763 at a variable cost of £20.00 per unit. The cost of packing and shipping the parts for outside customers is £1.00 per unit. These packing and shipping costs would not have to be incurred on sales of the parts to Division D.
-The minimum transfer price for Division D is

• A)£23
• B)£22
• C)£19
• D)£16

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Definitions:

Day

A day is a unit of time equivalent to 24 hours or the period it takes for the Earth to complete one full rotation on its axis.

Marginal Utility

The increased happiness or advantage received from using one more unit of a good or service.

Total Utility

The total satisfaction received from consuming a certain quantity of goods or services.

Marginal Utility

is the additional satisfaction or utility that a consumer receives from consuming one more unit of a good or service.