Suppose the selling division is operating at less than full capacity. Where would the floor of the bargaining range most probably be set at?
A) the market price
B) the full manufacturing cost
C) the variable cost of manufacturing
D) the average price of all products sold by the selling division

Question

Quizplus · Accepted Answer

The floor of the bargaining range would most probably be set at the variable cost of manufacturing since the selling division is operating below full capacity. At this level, the division would only need to cover the variable costs of production and would not need to factor in the fixed costs that are already being covered by the existing production. Choosing A or B would not be feasible since they would not allow for any profit for the division, and choosing D would not take into account the specific variable costs associated with the product being sold.

Suppose the Selling Division Is Operating at Less Than Full