Division X of Charter Corporation Makes and Sells a Single

question 10

Multiple Choice

Division X of Charter Corporation makes and sells a single product which is used by manufacturers of fork lift trucks. Presently it sells 12,000 units per year to outside customers at $24 per unit. The annual capacity is 20,000 units and the variable cost to make each unit is $16. Division Y of Charter Corporation would like to buy 10,000 units a year from Division X to use in its products. There would be no cost savings from transferring the units within the company rather than selling them on the outside market. What should be the lowest acceptable transfer price from the perspective of Division X?

• A) $24.00
• B) $21.40
• C) $17.60
• D) $16.00

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Definitions:

Shorepower

Term used to describe the means used to connect a truck/trailer combination to AC mains electrical power to supply hotel load electricity. A shorepower or hotel load grid exists on many U.S. and Canadian interstate routes. It is referred to 110, 230, and 460 V-AC mains feeds.

Hotel Loads

The electrical loads in a vehicle (often in trucking or mobile homes) not related to propulsion, such as lighting, climate control, and appliances.

AC Power

Alternating current electric power, characterized by a flow of charge that periodically reverses direction, used in households and industries for electrical devices and lighting.

Just-in-time Delivery

A supply chain management strategy that aims to reduce inventory and increase efficiency by receiving goods only as they are needed in the production process.