2. Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling Price to Outside Customers Variable Cost per Total Fixed Costs Capacity in Units 70 $ $ Unit 36 $300,000 25,000 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 $65 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X is currently selling 18,000 units to outside customers. According to the transfer pricing formula, what is the lowest acceptable limit on the transfer price for Division X? $48. A) B) $36. C) D) $65. $70.
2. Division X makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling Price to Outside Customers Variable Cost per Total Fixed Costs Capacity in Units 70 $ $ Unit 36 $300,000 25,000 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 $65 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X is currently selling 18,000 units to outside customers. According to the transfer pricing formula, what is the lowest acceptable limit on the transfer price for Division X? $48. A) B) $36. C) D) $65. $70.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:2. Division X makes a part that it sells to customers outside of the company. Data
concerning this part appear below:
Selling Price to Outside Customers
Variable Cost per Unit
Total Fixed Costs
Capacity in Units
70
36
$300,000
25,000
$
$
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 $65 per unit and would substitute the part made by Division X. Division Y
requires 5,000 units of the part each period. Division X is currently selling 18,000 units to
outside customers. According to the transfer pricing formula, what is the lowest
acceptable limit on the transfer price for Division X?
A) $48.
$36.
B)
$65.
C)
D)
$70.
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