Question: Varcore Inc. is currently acquiring a key component from its sister company, Farcore Inc., at a transfer price of $ 1 0 per unit. Farcore's
Varcore Inc. is currently acquiring a key component from its sister company, Farcore Inc., at a transfer price of $ per unit. Farcore's variable cost of purchasing the unit is $ and its fixed cost per unit is $ per unit. Farcore does not have any excess capacity and can sell all it makes to external customers at $ per unit. Varcore has been offered a price of $ per unit for the component from another vendor and is insisting that Farcore reduce its price to $ Which of the following statements below is false regarding this scenario?
a
The company will be better off if Farcore rejects Varcore's demand and instead sells the units that Varcore would buy to outside customers.
b
Since Farcore is operating at full capacity and has other external customers ready to purchase additional units, the best transfer price is its regular market price.
c
Varcore should purchase the unit externally because the internal cost of purchasing the unit internally is a variable cost of $ per unit plus an opportunity cost of $ per unit, or $
d
Varcore should not accept the outside offer because the variable cost of purchasing it inside is only $ per unit.
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