Division A of Sibley Ltd has operating data as follows: Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit.
If Division A is operating at capacity, what is the minimum price it should charge?
A) $40
B) $75
C) $20
D) $60

Question

Division A of Sibley Ltd has operating data as follows:  Division B wants to purchase units from Division A. If Division A agrees to sell units to Division B, A's variable costs will be $5 less per unit.
If Division A is operating at capacity, what is the minimum price it should charge?
A) $40 
B) $75 
C) $20 
D) $60

Quizplus · Accepted Answer

Since Division A is operating at capacity, it should charge at least its full variable cost per unit to sell to Division B, which is the sum of current variable cost plus $5, which is $35 + $5 = $40. Therefore, the minimum price Division A should charge is $40. The other options are higher than this price, so they are not the best choice.

Division a of Sibley Ltd Has Operating Data as Follows