Fragrance Pty Ltd Has Two Divisions: the Cologne Division and the Bottle

question 55

Multiple Choice

Fragrance Pty Ltd has two divisions: the Cologne Division and the Bottle Division. The company is decentralised and each division is evaluated as a profit centre. The Bottle Division produces bottles that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost per unit is $2.00 and shipping costs are $0.10 per unit. The Bottle Division's external sales price is $3.00 per unit. No shipping costs are incurred on sales to the Cologne Division. The Cologne Division can purchase similar bottles in the external market for $2.50.
Assume the Bottle Division has no excess capacity and can sell everything produced externally. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be:

• A) $2.10
• B) $2.50
• C) $2.90
• D) $3.00

---

Definitions:

Speculative Motive

The intent to hold cash for the purpose of taking advantage of future financial opportunities that may arise.

Opportunity Cost

The loss of potential gain from other alternatives when one particular alternative is chosen.

Rate Of Interest

The percentage of an amount of money which is charged for its use per period of time, often expressed annually.

Unit Banking States

States in the U.S. where banks are required to operate only a single banking office, limiting their physical presence and expansion.