A company is highly centralized.Division X,which is operating at capacity,produces a component that it currently sells in a perfectly competitive market for $13 per unit.At the current level of production,the fixed cost of producing this component is $4 per unit and the variable cost is $7 per unit.Division Y would like to purchase this component from Division X.The price that Division X should charge Division Y per unit for this component is:
A)$7.
B)$11.
C)$13.
D)$15.

Question

Quizplus · Accepted Answer

Since Division X is operating at capacity and sells the component in a perfectly competitive market for $13, the opportunity cost of selling to Division Y is $13 per unit. Therefore, Division X should charge Division Y $13 per unit.

A Company Is Highly Centralized