Company E is a large manufacturer that treats its divisions as profit centers. Division X produces an electronic component at the following costs: Variable production cost                 P80/unit Variable selling cost                P10/unit Fixed cost (based on 10,000 units) P10/unit Division Y currently purchases a similar component from an outside supplier for P105/unit. It has determined that the component produced by Division X could be used instead with no adverse effects on the quality of the final product. Currently, Division X, which is operating at full capacity, sells all of its output to outside customers at P112/unit per component.   What is the lowest price at which Division X would agree to transfer the component to Division Y?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Company E is a large manufacturer that treats its divisions as profit centers. Division X produces an electronic component at the following costs:
Variable production cost                 P80/unit
Variable selling cost                P10/unit
Fixed cost (based on 10,000 units) P10/unit
Division Y currently purchases a similar component from an outside supplier for P105/unit. It has determined that the component produced by Division X could be used instead with no adverse effects on the quality of the final product. Currently, Division X, which is operating at full capacity, sells all of its output to outside customers at P112/unit per component.
 
What is the lowest price at which Division X would agree to transfer the component to Division Y?
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