A company has two divisions,A and B,each operated as a profit center.Division A charges Division B $35 per unit (for each unit transferred to Division B).Other data for Division A are as follows: Division A is planning to raise its transfer price to $50 per unit.Division B can purchase units at $40 per unit from outsiders,but doing so would idle Division A's facilities (now committed to producing units for Division B),Division A cannot increase its sales to outsiders.From the perspective of the company as a whole,from who should Division B acquire the units,assuming Division B's market is unaffected?
A)Outside vendors.
B)Division A,but only at the variable cost per unit.
C)Division A,but only until fixed costs are covered,then should purchase from outside vendors.
D)Division A,in spite of the increased transfer price.

Question

Quizplus · Accepted Answer

Since Division A cannot sell to outsiders and its facilities would be idle if Division B buys from outside vendors, it is more beneficial for the company as a whole for Division B to continue purchasing from Division A, even at the increased transfer price.

A Company Has Two Divisions,A and B,each Operated as a Profit