Division South does not have excess capacity to produce Product Y.The division can sell Product Y for $10 per unit outside the company.Variable costs are $6 per unit.Division North wants to purchase Product Y from Division South to use in Product ZZ.The selling price of Product ZZ is $25 per unit and variable costs to finish the product after the transfer are $12 per unit.An outside supplier will sell Product Y for $12 per unit.What is the maximum price Division North will pay for Product Y?
A) $12 per unit
B) $13 per unit
C) $25 per unit
D) none of the above

Question

Quizplus · Accepted Answer

The maximum price Division North will pay for Product Y is $12 per unit, which is the price at which they can purchase it from an outside supplier. Since Division South does not have excess capacity, Division North would not pay more than the market price of $12 per unit.

Division South Does Not Have Excess Capacity to Produce Product