You have been provided with the following information for Division X of a decentralized company:
$$\begin{array} { l r }
\text { Selling price } & \$ 90\
\text { Variable cost per unit } & 66 \
\text { Fixed cost per unit } & 20 \
\text { Sales volume (units) } & 22,500 \
\text { Capacity (units) } & 25,000
\end{array}$$
Division Y of the same company would like to purchase all of its units internally. Division Y needs 6,000 units each period and currently pays $84 per unit to an outside firm. What is the lowest price that Division X could accept from Division Y? (Assume that Division Y wants to use a sole supplier and will not purchase less than 6,000 from a supplier.)
A) $90.
B) $84.
C) $80.
D) $66.

Question

You have been provided with the following information for Division X of a decentralized company:
$$\begin{array} { l r } 
\text { Selling price } & \$ 90\
\text { Variable cost per unit } & 66 \
\text { Fixed cost per unit } & 20 \
\text { Sales volume (units) } & 22,500 \
\text { Capacity (units) } & 25,000
\end{array}$$
Division Y of the same company would like to purchase all of its units internally. Division Y needs 6,000 units each period and currently pays $84 per unit to an outside firm. What is the lowest price that Division X could accept from Division Y? (Assume that Division Y wants to use a sole supplier and will not purchase less than 6,000 from a supplier.)
A) $90.
B) $84.
C) $80.
D) $66.

Quizplus · Accepted Answer

Division X's lowest acceptable price is its variable cost per unit, which is $66.

You Have Been Provided with the Following Information for Division