Buchmiller Company's records reveal the following:
The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.
-If Division X is NOT at full capacity, the lowest price at which it would be willing to sell to Division Y would be

Question

Buchmiller Company's records reveal the following:
   The variable costs of Division Y will be incurred whether it buys from Division X or from an outside supplier.
-If Division X is NOT at full capacity, the lowest price at which it would be willing to sell to Division Y would be

Quizplus · Accepted Answer

The variable costs incurred by Division Y are the same whether they buy from Division X or an outside supplier. Therefore, Division Y should choose the option that offers the lowest cost. If Division X is not at full capacity, it would be willing to sell to Division Y at a price above its variable costs but below the price charged by an outside supplier. The lowest price at which Division X would sell would be its variable costs plus a markup to cover fixed costs and contribute to profit. The question does not provide information about fixed costs, so we cannot calculate the exact markup. However, we can eliminate choices A and D because they are above the price charged by an outside supplier, which would always be the more expensive option for Division Y. Choice C is too low to cover Division X's fixed costs and contribute to profit. Therefore, the best choice is B, which is between the variable cost and the outside supplier price and is a reasonable markup for Division X's fixed costs and profit.

Buchmiller Company's Records Reveal the Following