Division A produces a component for Honda Ltd's main product

Question

Division A produces a component for Honda Ltd's main product - motor vehicles. The division operates as a profit centre. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A:  The minimum price at which A would sell components internally is
A) $71 
B) $73 
C) $75 
D) $65

Quizplus · Accepted Answer

The Answer of Division A produces a component for Honda Ltd's main product - motor vehicles. The division operates as a profit centre. It also sells to outsiders. The present selling price is $75 per component. The company buys 600,000 units of a similar component per year from outside sources. The external purchase price is $73 as a result of a quantity discount. Division A has adequate capacity to supply the needs of the Assembly division. The following data are for Division A:  The minimum price at which A would sell components internally is
A) $71 
B) $73 
C) $75 
D) $65