Reference no: EM132603193

Division T of Clocker Company makes a timer which it sells for $30 to outside customers. The division has supplied the following data concerning the timer:

Monthly capacity......................... 12,000 timers

Variable cost per unit................. $15

Fixed cost per unit...................... $10

Presently, Division S of Clocker Company is currently buying 5,000 similar timers each month from an overseas supplier at $27 each. Division S would like to acquire its timers from Division T if the price is right.

Question 1: Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A) $30

B) $27

C) $25

D) $15

Question 2: Suppose Division T is operating at capacity and can sell all of the timers it produces to outside customers at its usual selling price. If Division T meets the price of the overseas supplier and sells 5,000 timers to Division S each month, the effect on the monthly net operating income of the company as a whole will be:

A) increase of $15,000

B) decrease of $15,000

C) decrease of $60,000

D) increase of $10,000

Question 3:  Suppose that Division T can sell only 10,000 timers to outside customers. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

A) $24

B) $27

C) $30

D) $15