General Auto's Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which has excess capacity, makes and sells this part for external customers at a variable cost of $19 and a selling price of $31. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $3. On the basis of this information, Southern would establish a transfer price of:
A) $16.
B) $19.
C) $28.
D) $31.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

The Answer of General Auto's Northern Division is currently purchasing a part from an outside supplier. The company's Southern Division, which has excess capacity, makes and sells this part for external customers at a variable cost of $19 and a selling price of $31. If Southern begins sales to Northern, it (1) will use the general transfer-pricing rule and (2) will be able to reduce variable cost on internal transfers by $3. On the basis of this information, Southern would establish a transfer price of:
A) $16.
B) $19.
C) $28.
D) $31.
E) None of the other answers are correct.

General Auto's Northern Division Is Currently Purchasing a Part from an Outside