Good, Inc.'s records reveal the following:
The variable cost of Division B will be incurred whether it buys from Division A or from an outside supplier.
-If Division A is working at full capacity, the lowest price it would be willing to accept from Division B would be
A) $12.
B) $18.
C) $24.
D) $30.

Question

Good, Inc.'s records reveal the following:
   The variable cost of Division B will be incurred whether it buys from Division A or from an outside supplier.
-If Division A is working at full capacity, the lowest price it would be willing to accept from Division B would be
A) $12. 
B) $18. 
C) $24. 
D) $30.

Quizplus · Accepted Answer

The variable cost of Division B will be incurred whether it buys from Division A or an outside supplier. Therefore, we should compare the cost of buying from Division A to the cost of buying from an outside supplier.

If Division A is working at full capacity, it means that Division B has no choice but to buy from an outside supplier. Let's assume that the cost of buying from an outside supplier is $30.

If Division A wants to be competitive, it would need to offer a price lower than $30. However, it cannot offer a price lower than its variable cost.

From the given information, we know that Division B can offer a maximum price of $36 ($24 + $12) to Division A. Therefore, the lowest price that Division A would be willing to accept is $24.

Therefore, the correct answer is C) $24.

Good, Inc.'s Records Reveal the Following