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:

Reward Reduction

A decrease in the magnitude or frequency of a rewarding stimulus following a behavior, which can affect the future likelihood of that behavior.

Environmental Stimuli

External factors or changes in the environment that can influence an individual's behavior or physiological responses.

Temper Tantrum

An emotional outburst, typically characterized by crying, screaming, defiance, and anger, common among toddlers as a way to express frustration or attempt to assert control.

Guthrie's Theory

A theory in psychology proposed by Edwin Guthrie suggesting that learning is a result of a simple association between a stimulus and a response, without the need for repetition or reinforcement.