The West and East Divisions are part of the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $448 per unit.The cost data pertaining to the part is supplied by the West Division: If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.What is the maximum transfer price per unit that East Division should pay for the part?
A)$388.80
B)$414.40
C)$448.00
D)$480.00

Question

The West and East Divisions are part of the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $448 per unit.The cost data pertaining to the part is supplied by the West Division:  If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.What is the maximum transfer price per unit that East Division should pay for the part?
A)$388.80 
B)$414.40 
C)$448.00 
D)$480.00

Quizplus · Accepted Answer

The Answer of The West and East Divisions are part of the same company.Currently the East Division buys a part from West Division for $384 per unit.The West Division wants to increase the price of the part it sells to East Division by $96 to $480.The manager of the East Division has stated that he cannot pay that much insofar as the division's profit goes below zero.The manager of the East Division can buy the part from an outside supplier for $448 per unit.The cost data pertaining to the part is supplied by the West Division:  If West Division does not produce the parts for the East Division,it will be able to avoid one-third of the fixed manufacturing overhead costs.The West Division has excess capacity but no alternative uses for the facilities.What is the maximum transfer price per unit that East Division should pay for the part?
A)$388.80 
B)$414.40 
C)$448.00 
D)$480.00

The West and East Divisions Are Part of the Same