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$50 Variable cost per unit$30 Total fixed costs$400,000 Capacity in units 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 $49 per unit and would substitute the part made by Division X. Division Y requires 5,000 units of the part each period. Division X has ample excess capacity to handle all of Division Y's needs without any increase in fixed costs and without cutting into outside sales. What is the lowest transfer price Division X will accept?
A. $49
B. $20
C. $46
D. $30
E. $50
Answer: D
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