Avery Corporation has two divisions,A and B,which are both organized as profit centers;Division A produces and sells widgets to Division B and to outside customers.Division A has total costs of $35,$20 of which are variable.Division A is operating significantly below capacity and sells the widgets for $50.Division B has received an offer from an outsider vendor to supply all the widgets it needs (20,000 widgets)at a cost of $45.The manager of Division B is considering the offer but wants to approach Division A first.What is the maximum transfer price from Division A to Division B?
A)$20.
B)$35.
C)$45.
D)$50.

Question

Quizplus · Accepted Answer

The maximum transfer price from Division A to Division B would be equal to the price the outside vendor is offering, which is $45. This is because if Division A charges a higher price, Division B would be better off buying from the outsider vendor. Additionally, since Division A is operating significantly below capacity, it can still cover its variable costs and make a profit by selling to Division B at $45. Therefore, the maximum transfer price is $45.

Avery Corporation Has Two Divisions,A and B,which Are Both Organized