Use the following to answer questions:
Vallarta Inc. has two divisions, P and Q, with the following information:

The variable cost of Division Q will be incurred regardless of where it purchases the components, internally or externally.
-If Division P wants to transfer the component to Division Q at a $45 transfer price, the manager of Division Q would
A) Buy from Division P because it would be in the best interests of the company as a whole
B) Ask the manager of Division P to split the difference between the transfer price and market price, equally
C) Not want to buy from Division P since the component could be purchased in the market for $38
D) Buy from Division P as long as Division Q could supply enough quantity to make it profitable for Division Q

Question

Use the following to answer questions:
Vallarta Inc. has two divisions, P and Q, with the following information:
  
The variable cost of Division Q will be incurred regardless of where it purchases the components, internally or externally.
-If Division P wants to transfer the component to Division Q at a $45 transfer price, the manager of Division Q would
A) Buy from Division P because it would be in the best interests of the company as a whole 
B) Ask the manager of Division P to split the difference between the transfer price and market price, equally 
C) Not want to buy from Division P since the component could be purchased in the market for $38 
D) Buy from Division P as long as Division Q could supply enough quantity to make it profitable for Division Q

Quizplus · Accepted Answer

The manager of Division Q would not want to buy from Division P at a transfer price of $45 when the component could be purchased in the market for $38, as it would be more cost-effective to buy from the market.

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