Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below: Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales.What is the lowest transfer price Division X will accept?
A)$50
B)$49
C)$46
D)$30
E)$20

Question

Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:  Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales.What is the lowest transfer price Division X will accept?
A)$50 
B)$49 
C)$46 
D)$30 
E)$20

Quizplus · Accepted Answer

The Answer of Division X makes a part that it sells to customers outside of the company.Data concerning this part appear below:  Division Y of the same company would like to use the part manufactured by Division X in one of its products.Division Y currently purchases a similar part made by an outside company for $49 per unit and would substitute the part made by Division X.Division Y requires 5,000 units of the part each period.Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales.What is the lowest transfer price Division X will accept?
A)$50 
B)$49 
C)$46 
D)$30 
E)$20

Division X Makes a Part That It Sells to Customers