Division M Makes a Part That It Sells to Customers

question 193

Multiple Choice

Division M makes a part that it sells to customers outside of the company. Data concerning this part appear below: Division O of the same company would like to use the part manufactured by Division M in one of its products. Division O currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division M. Division O requires 5,000 units of the part each period. Division M can sell every unit it produces on the outside market. What should be the lowest acceptable transfer price?

• A) $75
• B) $66
• C) $16
• D) $50
• E) $25