Solved

Parkside Inc

Question 77

Multiple Choice

Parkside Inc.has several divisions that operate as decentralized profit centers.Parkside's Entertainment Division manufactures video arcade equipment using the products of two of Parkside's other divisions.The Plastics Division manufactures plastic components,one type that is made exclusively for the Entertainment Division,while other less complex components are sold to outside markets.The products of the Video Cards Division are sold in a competitive market;however,one video card model is also used by the Entertainment Division.The actual costs per unit used by the Entertainment Division follow: (CMA adapted) Parkside Inc.has several divisions that operate as decentralized profit centers.Parkside's Entertainment Division manufactures video arcade equipment using the products of two of Parkside's other divisions.The Plastics Division manufactures plastic components,one type that is made exclusively for the Entertainment Division,while other less complex components are sold to outside markets.The products of the Video Cards Division are sold in a competitive market;however,one video card model is also used by the Entertainment Division.The actual costs per unit used by the Entertainment Division follow: (CMA adapted)    The Plastics Division sells its commercial products at full cost plus a 25% markup and believes the proprietary plastic component made for the Entertainment Division would sell for $6.25 per unit on the open market.The market price of the video card used by the Entertainment Division is $10.98 per unit.Assume that the Plastics Division has excess capacity and it has negotiated a transfer price of $5.60 per plastic component with the Entertainment Division.This price will: A) cause the Plastics Division to reduce the number of commercial plastic components it manufactures. B) motivate both divisions as estimated profits are shared. C) encourage the Entertainment Division to seek an outside source for plastic components. D) demotivate the Plastics Division causing mediocre performance. The Plastics Division sells its commercial products at full cost plus a 25% markup and believes the proprietary plastic component made for the Entertainment Division would sell for $6.25 per unit on the open market.The market price of the video card used by the Entertainment Division is $10.98 per unit.Assume that the Plastics Division has excess capacity and it has negotiated a transfer price of $5.60 per plastic component with the Entertainment Division.This price will:


A) cause the Plastics Division to reduce the number of commercial plastic components it manufactures.
B) motivate both divisions as estimated profits are shared.
C) encourage the Entertainment Division to seek an outside source for plastic components.
D) demotivate the Plastics Division causing mediocre performance.

Correct Answer:

verifed

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Unlock this Answer For Free Now!

View this answer and more for free by performing one of the following actions

qr-code

Scan the QR code to install the App and get 2 free unlocks

upload documents

Unlock quizzes for free by uploading documents