You have been provided with the following information for Division X of a decentralized company: Division W would like to purchase all of its units internally.Division W needs 6,000 units each period and currently pays $42 per unit to an outside firm.What is the lowest price that Division X could accept from Division W? Assume that Division W wants to use a sole supplier and will not purchase less than 6,000 from a supplier.
A)$45.
B)$42.
C)$40.
D)$38.
E)$33.

Question

Quizplus · Accepted Answer

Division X should set their price at the highest cost that Division W is currently paying to an outside firm, which is $42 per unit. However, since Division W is a captive customer and requires a sole supplier, Division X could offer a slight discount to incentivize Division W to purchase internally. The lowest price Division X could offer while still generating a profit would be $40 per unit, which is $2 less than what Division W is currently paying to an outside firm. Therefore, the best choice is C) $40.

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