Reed Company records reveal the following: The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier. If Division X wants to transfer the components to Division Y for $34 each, the manager of Division Y would:
A) buy from Division X as long as Division X could supply a large enough quantity to make it profitable to Division Y
B) probably ask Division X's manager to split the difference between the $34 and the market price of $32 to arrive at a transfer price of $36
C) not want to buy from Division X, as the same component could be purchased at the market price of $32
D) buy from Division X, as this would be in the best interest of the company as a whole

Question

Reed Company records reveal the following:  The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier. If Division X wants to transfer the components to Division Y for $34 each, the manager of Division Y would:
A) buy from Division X as long as Division X could supply a large enough quantity to make it profitable to Division Y 
B) probably ask Division X's manager to split the difference between the $34 and the market price of $32 to arrive at a transfer price of $36 
C) not want to buy from Division X, as the same component could be purchased at the market price of $32 
D) buy from Division X, as this would be in the best interest of the company as a whole

Quizplus · Accepted Answer

The Answer of Reed Company records reveal the following:  The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier. If Division X wants to transfer the components to Division Y for $34 each, the manager of Division Y would:
A) buy from Division X as long as Division X could supply a large enough quantity to make it profitable to Division Y 
B) probably ask Division X's manager to split the difference between the $34 and the market price of $32 to arrive at a transfer price of $36 
C) not want to buy from Division X, as the same component could be purchased at the market price of $32 
D) buy from Division X, as this would be in the best interest of the company as a whole

Reed Company Records Reveal the Following: the Variable Costs