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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