(Appendix 11A) Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics Division and the Components Division. The Plastics Division sells molded parts to both the Components Division and to customers outside the corporation.
-Assume that the Plastics Division is currently operating with idle capacity.Also assume that the Components Division wants to purchase from Plastics all of the additional parts that could be made with this idle capacity.In order to increase its current level of profitability,the Plastics Division should accept any transfer price on these additional parts that is above the:
A) variable cost of the additional parts.
B) full (absorption) cost of the additional parts.
C) variable cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.
D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.

Question

Quizplus · Accepted Answer

In this case there is no opportunity cost, so the Plastics Division only needs to cover its variable cost.

(Appendix 11A) Two of the Decentralized Divisions of Gamberi Electronics