MC Qu. 137 Division A makes a part that it sells to cu...

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
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 be unit would be $1 lower. What should be the lowest acceptable transfer price from the perspective of Division A?

$40

$38

$30

$29

$10

MC Qu 137 DMsion A makes a part that it sells to cu. sion A makes a pert thesttses to customers outide of the company Dets concening this part apper below eling price to outside customers S8pe ed by Dison A r one of ts pecdis 5,000 uns ofthepart each period Division A has man laa cune oyurchases "mis per made byanea deco pay er ir dera re wie (ongmy would ise 10 ne and would sbunethe part made by Duision A Disionequ 8sther than to ouside m te nit would be 5 lower Whe should be the w 0 40 O $29