Division A makes a part that it sells to customers outside of the company. Data concerning this part appear below: Selling price to outside customers............. $40 $30 Variable cost per unit. Total fixed costs. Capacity in units. $10,000 20,000 Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost be unit would be $1 lower. What should be the lowest acceptable transfer price from the perspective of Division A? Select one: a. $40 b. $38 C. $30 d. $29

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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**Division A's Part Sale Analysis**

Division A makes a part that it sells to customers outside of the company. Data concerning this part appears below:

| **Selling price to outside customers** | $40 |
|---------------------------------------|-----|
| **Variable cost per unit**            | $30 |
| **Total fixed costs**                 | $10,000 |
| **Capacity in units**                 | 20,000 |

Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost per unit would be $1 lower. 

**Question:**
What should be the lowest acceptable transfer price from the perspective of Division A?

**Options:**
- a. $40
- b. $38
- c. $30
- d. $29
Transcribed Image Text:**Division A's Part Sale Analysis** Division A makes a part that it sells to customers outside of the company. Data concerning this part appears below: | **Selling price to outside customers** | $40 | |---------------------------------------|-----| | **Variable cost per unit** | $30 | | **Total fixed costs** | $10,000 | | **Capacity in units** | 20,000 | Division B of the same company would like to use the part manufactured by Division A in one of its products. Division B currently purchases a similar part made by an outside company for $38 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A has ample capacity to produce the units for Division B without any increase in fixed costs and without cutting into sales to outside customers. If Division A sells to Division B rather than to outside customers, the variable cost per unit would be $1 lower. **Question:** What should be the lowest acceptable transfer price from the perspective of Division A? **Options:** - a. $40 - b. $38 - c. $30 - d. $29
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