Division A of Sibley, Inc. has operating data as follows: $$\begin{array} { l l }
\text { Capacity } & 20,000 \text { units } \
\text { Selling price } & \$ 80 \text { per unit } \
\text { Variable costs } & \$ 45 \text { per unit } \
\text { Fixed costs } & \$ 20 \text { per unit }
\end{array}$$ 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 has capacity available to meet B's requirements, what is the minimum price it should charge?
A) $40
B) $75
C) $20
D) $60

Question

Division A of Sibley, Inc. has operating data as follows: $$\begin{array} { l l } 
\text { Capacity } & 20,000 \text { units } \
\text { Selling price } & \$ 80 \text { per unit } \
\text { Variable costs } & \$ 45 \text { per unit } \
\text { Fixed costs } & \$ 20 \text { per unit }
\end{array}$$ 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 has capacity available to meet B's requirements, what is the minimum price it should charge?
A) $40
B) $75
C) $20
D) $60

Quizplus · Accepted Answer

Division A's variable costs will be $45 - $5 = $40 per unit if it sells to Division B. The minimum price it should charge is $40 + $20 = $60 per unit.

Division a of Sibley, Inc Division B Wants to Purchase Units from Division A