Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:
$$\begin{array} { ll }
\text { Selling price to outside customers } & \$ 50 \
\text { Variable cost per unit } & \$30 \
\text { Total fixed costs } & \$ 400,000 \
\text { Capacity in units } & 25,000
\end{array}$$
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.

Question

Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:
$$\begin{array} { ll } 
\text { Selling price to outside customers } & \$  50 \
\text { Variable cost per unit } & \$30 \
\text { Total fixed costs } & \$ 400,000 \
\text { Capacity in units } &  25,000
\end{array}$$
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.

Quizplus · Accepted Answer

The Answer of Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below:
$$\begin{array} { ll } 
\text { Selling price to outside customers } & \$  50 \
\text { Variable cost per unit } & \$30 \
\text { Total fixed costs } & \$ 400,000 \
\text { Capacity in units } &  25,000
\end{array}$$
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.

Division X Makes a Part That It Sells to Customers