Division M 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 O of the same company would like to use the part manufactured by Division M in one of its products. Division O currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division M. Division O requires 5,000 units of the part each period. Division M can sell every unit it produces on the outside market. What should be the lowest acceptable transfer price?
A. $66
B. $75
C. $16
D. $25
E. $50
Answer: B
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Answer the following statement true (T) or false (F)
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A) 8,500 units B) 2,975 units C) 1,041 units D) 170,000 units
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