Question

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	$	94
Variable cost per unit	$	60
Total fixed costs	$	704,000
Capacity in units		44,000

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 $87 per unit and would substitute the part made by Division A. Division B requires 6,900 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?

• $94.

• $76.

• $16.

• $60.

pt2 Division B has variable manufacturing costs of $62 per unit and fixed costs of $12 per unit. Assuming that Division B is operating significantly below capacity, what is the opportunity cost of an internal transfer when the market price is $84?

• $0.

• $22.

• $62.

• $74.