The Pillar Division of the Gothic Building Company Produces Basic

Multiple Choice

The Pillar Division of the Gothic Building Company produces basic pillars which can be sold to outside customers or sold to the Lantern Division of the Gothic Company. The Lantern Division wants to purchase 25,000 pillars from the Pillar Division. The following data are available for last year's activities of the Pillar Division:
$$\begin{array} { ll} \text { Capacity in units } & 300,000 \text { pillars } \\\text { Selling price per pillar to outside customers } & \$ 1.75 \\\text { Variable costs per pillar } & \$ 0.90 \\\text { Fixed costs, total } & \$ 150,000\end{array}$$

The total fixed costs would be the same for all the alternatives considered.
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Suppose the transfers of pillars to the Lantern Division would reduce sales to outside customers by 15,000 units. What is the lowest transfer price that would not reduce the profits of the Pillar Division?

A) $0.90.
B) $1.35.
C) $1.41.
D) $1.75.