When there is unused capacity, ________. Select one: a. the transfer-price range
ID: 2488252 • Letter: W
Question
When there is unused capacity, ________. Select one: a. the transfer-price range lies between the its variable cost per unit and the higher of its contribution or price at which the product is available from external suppliers b. the transfer-price range lies between the maximum price at which the selling division is willing to sell and the minimum price the buying division is willing to pay c. the transfer-price range lies between the minimum price at which the selling division is willing to sell and the maximum price the buying division is willing to pay d. the transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers
Explanation / Answer
c) the transfer-price range lies between the minimum price at which the selling division is willing to sell and the maximum price the buying division is willing to pay.
As there is unused capacity so there will no contribution loss to selling division as it does not affect its current sales. So than a transfer price can be fixed which is the minimum price that the selling division will be willing to sell at,this does not include fixed cost but includes the variable cost which selling division has to incurr per unit to sell it to buying division. Ans buying division can after taking quotes from external suppliers can set a maximum price which it can pay so the transfer price will range in between both of these.
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