Fruities Ltd Has Two Divisions, Durian Division and Juice Division

question 57

Multiple Choice

Fruities Ltd has two divisions, Durian Division and Juice Division. Durian Division has an annual capacity of 10 000 units of either juice concentrate or fruit paste. Usually, Durian Division produces durian juice concentrate for the Juice Division. Juice Division's annual requirement of durian juice concentrate is 8000 units. There is no external market for durian juice concentrate; however, the Durian Division can use its facilities to manufacturer prune paste, which is a very popular product with unlimited external demand. The market price for prune paste is $13 per unit. The variable production cost of one unit of durian juice concentrate at Durian Division is $6, and the variable production cost of one unit of prune paste is $8. Durian division also incurs $1 additional shipping cost per unit when selling prune paste to external suppliers.
Using the transfer pricing formula, what is the per unit transfer price selling one unit of durian juice concentrate to Juice Division?

• A) $6
• B) $8
• C) $10
• D) $11

---

Definitions:

Quantity

A property that can exist as a magnitude or multitude, often measurable and expressed as a number or amount.

Quality

An attribute or a property characteristics of an object, person, or something else.

Quantified Existential

A logical term referring to statements that quantify the existence of some entity or entities in a particular domain.

Open Sentence

An expression or statement that contains one or more variables, which becomes either true or false when specific values are substituted.