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?
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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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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