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 from the perspective of Division O?
A)$75
B)$66
C)$16
D)$50
E)$25

Question

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 from the perspective of Division O?
A)$75 
B)$66 
C)$16 
D)$50 
E)$25

Quizplus · Accepted Answer

The Answer of 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 from the perspective of Division O?
A)$75 
B)$66 
C)$16 
D)$50 
E)$25

Division M Makes a Part That It Sells to Customers