Division X Makes a Part That It Sells to Customers

question 23

Multiple Choice

Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below: 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 $70 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 already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division X?

• A)$75
• B)$66
• C)$16
• D)$50

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Definitions:

Laboratory Research

Scientific experimentation and analysis conducted in a controlled, indoor environment equipped with specific tools and equipment.

Real-Life Events

Actual occurrences in one’s day-to-day life, as opposed to hypothetical or fictional scenarios, that can influence emotions, behavior, and health.

Mentally Incompetent

A legal determination that a person is unable to make decisions for themselves due to mental incapacity or illness.

Psychological Treatment

Therapeutic interventions designed to address and alleviate mental health issues through various talk therapy methods.