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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Definitions:

HR Managers

Professionals responsible for overseeing various functions associated with managing an organization's employees, including recruitment, training, performance management, and benefits administration.

Administrative Efficiency

The effectiveness with which administrative tasks and processes are carried out, minimizing waste and maximizing productivity.

Employee Leasing

A practice where businesses hire their workers through a third party, which is responsible for all HR functions including payroll and benefits.

Traditional Office

A standard workplace setting characterized by individual offices or cubicles, fixed work hours, and in-person collaboration among employees.