Division West does not have excess capacity to produce Product XX.The division can sell Product XX for $10 per unit outside the company.Variable costs are $6 per unit.Division East wants to purchase Product XX from Division West 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 XX for $11 per unit.What is the maximum price Division East will pay for Product XX?
A) $11 per unit
B) $12 per unit
C) $13 per unit
D) none of the above

Question

Quizplus · Accepted Answer

The maximum price Division East will pay for Product XX is $11 per unit, which is the price at which they can purchase it from an outside supplier. Paying more than $11 would not be economical since they can obtain it externally at this price.

Division West Does Not Have Excess Capacity to Produce Product