Asked by Kunwar Singh on May 18, 2024
Verified
Two of the decentralized divisions of Gamberi Electronics Corporation are the Plastics Division and the Components Division. The Plastics Division sells molded parts to both the Components Division and to customers outside the corporation.Assume that the Plastics Division is currently operating at full capacity. Also assume that the Components Division wants to increase the number of parts it purchases from Plastics. In order to maintain its current level of profitability, the Plastics Division should not accept any transfer price on these additional parts that is below the:
A) variable cost of the additional parts.
B) full (absorption) cost of the additional parts.
C) variable cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.
D) full (absorption) cost of the additional parts plus the lost contribution margin on all units that could no longer be sold to customers outside the corporation.
Full (Absorption) Cost
The total cost of a product that includes all direct and indirect costs, such as raw materials, labor, and overhead, required for its production.
Transfer Price
The price charged for goods or services transferred between divisions or units of the same company.
Additional Parts
Extra components or pieces supplied beyond the original requirements, often used for repairs, replacements, or enhancements.
- Analyze how operating at capacity affects intra-company selling decisions.
- Ascertain the effect of internal sales on the company's total profit margins.
Verified Answer
Learning Objectives
- Analyze how operating at capacity affects intra-company selling decisions.
- Ascertain the effect of internal sales on the company's total profit margins.
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