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$75 Variable cost per unit$50 Total fixed costs$400,000 Capacity in (units) 25,000 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 $70 per unit and would substitute the part made by Division A. Division B requires 5,000 units of the part each period. Division A can already sell all of the units it can produce on the outside market. What should be the lowest acceptable transfer price from the perspective of Division A?
A. $16.
B. $75.
C. $50.
D. $66.
Answer: B
Business
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