Division X Makes a Part That It Sells to Customers

question 12

Multiple Choice

Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:
Selling price to outside customers $50
Variable cost per unit $30
Total fixed costs $400,000
Capacity in units 25,000
Division Y of the same company would like to use the part manufactured by Division X in one of its products. Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X can sell all of the units it makes to outside customers. What is the lowest acceptable transfer price from the standpoint of the selling division?

• A) $50
• B) $49
• C) $46
• D) $30

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Definitions:

Descending Tracts

Pathways in the spinal cord that transmit motor commands from the brain to the body, controlling voluntary movements.

Spinal Cord

The long, thin, tubular structure made from nervous tissue that extends from the brainstem down the vertebral column, conducting nerve impulses between the brain and the rest of the body.

Patellar Reflex

A reflex action that causes the lower leg to kick forward when the patellar tendon just below the kneecap is tapped; a measure of the function of the nervous system.

Spinal Segments

Sections of the spinal cord that correspond to the vertebrae, from which spinal nerves emerge to innervate specific areas of the body.