Electronic Division Makes a Part That Sells Externally for $50

Multiple Choice

Electronic Division makes a part that sells externally for $50.00 per unit. It has a variable production cost of $22.00 per unit, a variable selling and administrative cost of $7.00 per unit, a fixed production cost of $1,000,000 per year, and a fixed selling and administrative cost of $500,000 per year. Production capacity is 250,000 units per year. Electronic Division is selling all it can produce externally at $50.00 per unit. One-half of the variable selling and administrative cost can be eliminated on units transferred to the Digital Division. Digital Division can buy the part externally at $48.00 per unit and uses 30,000 parts annually. Should a transfer take place, and if so what are the rational limits on the range of transfer prices?

A) No transfer should take place.
B) A transfer should take place at $46.50.
C) A transfer should take place at $48.
D) A transfer should take place between $46.50 and $48.