The Western Division of Pryto Corporation sells Part D to other companies for $7
ID: 341311 • Letter: T
Question
The Western Division of Pryto Corporation sells Part D to other companies for $78.50 per unit. According to the company's cost accounting system, the costs to Western Division to make a unit of Product D are:
The Southern Division of Pryto Corporation uses a part much like Part D in one of its products. The Southern Division can buy this part from an outside supplier for $78.25 per unit. However, the Southern Division could use Part D instead of this part that it purchases from outside suppliers. What is the most that the Southern Division would be willing to pay the Western Division for Product D?
Direct material $62 Direct labor $2 Variable manufacturing overhead $10 Fixed manufacturing overhead $2Explanation / Answer
The most that the Southern Division would be willing to pay the Western Division for Product D would be $ 78.25 per unit, as southern division can get such part from the outside supplier for $ 78.25 and as such he woul be willing to pay only such amount.
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