Division X Makes a Part That It Sells to Customers

question 79

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 $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 has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales. What is the lowest transfer price Division X will accept?

• A) $50
• B) $49
• C) $46
• D) $30
• E) $20

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Definitions:

Intercostal Muscles

Muscles located between the ribs that play a role in the breathing process.

Thoracic Cavity

The part of the body located between the neck and the abdomen that houses organs such as the heart and lungs.

Mucus-Secreting Cells

Specialized cells found in various parts of the body that produce and release mucus, which serves protective and lubricating functions.

Bronchial Tree

A series of tubes that begins where the distal end of the trachea branches.