Division S sold a part to both Division P and outside customers last year. The revenues from these sales were $30,000 (1,000 units) and $35,000 (1,000 units), respectively. Next year, S plans to increase the unit sales price to $42 and wants a proportionate increase in the sales price to Division P. The unit costs are $9 variable and $15 fixed. If Division P does not agree to the price increase, 50% of Division S's fixed costs will be eliminated.
What is the highest price Division P would be willing to pay for external purchases?
A) $30.00
B) $36.00
C) $16.50
D) $28.50

Question

Quizplus · Accepted Answer

Division P would be willing to pay up to the external market price of $36.00, which is the current price Division S charges to outside customers.

Division S Sold a Part to Both Division P and Outside