The West division produces a part with the following characteristics: Capacity (

Question

The West division produces a part with the following characteristics:
Capacity (units) 20,000 Selling price per unit $33 Variable cost per unit $18 Fixed cost per unit $4
Another division (East) within the same company would like to buy this part from the West division. The East division is currently purchasing the part from an outside supplier for $40 per unit. If the West division sells to the East division, $5 in variable costs can be avoided.
Suppose that the West division has enough capacity to handle the demand from the East division with no change in fixed costs. From the West division's perspective any sales to the East division should be priced no lower than: Answer                                                   A.            $28                             B.            $14                             C.            $13                             D.            $18 The West division produces a part with the following characteristics:
Capacity (units) 20,000 Selling price per unit $33 Variable cost per unit $18 Fixed cost per unit $4
Another division (East) within the same company would like to buy this part from the West division. The East division is currently purchasing the part from an outside supplier for $40 per unit. If the West division sells to the East division, $5 in variable costs can be avoided.
Suppose that the West division has enough capacity to handle the demand from the East division with no change in fixed costs. From the West division's perspective any sales to the East division should be priced no lower than: The West division produces a part with the following characteristics:
Capacity (units) 20,000 Selling price per unit $33 Variable cost per unit $18 Fixed cost per unit $4
Another division (East) within the same company would like to buy this part from the West division. The East division is currently purchasing the part from an outside supplier for $40 per unit. If the West division sells to the East division, $5 in variable costs can be avoided.
Suppose that the West division has enough capacity to handle the demand from the East division with no change in fixed costs. From the West division's perspective any sales to the East division should be priced no lower than: Capacity (units) 20,000 Selling price per unit $33 Variable cost per unit $18 Fixed cost per unit $4
Another division (East) within the same company would like to buy this part from the West division. The East division is currently purchasing the part from an outside supplier for $40 per unit. If the West division sells to the East division, $5 in variable costs can be avoided.
Suppose that the West division has enough capacity to handle the demand from the East division with no change in fixed costs. From the West division's perspective any sales to the East division should be priced no lower than: $28 $14 $13 $18 Capacity (units) 20,000 Selling price per unit $33 Variable cost per unit $18 Fixed cost per unit $4

Explanation / Answer

At capacity, West will settle for collecting its variable cost per unit.---$18 - $5 = $13

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