A Factory Has Several Business Units and Is Vertically Integrated

Multiple Choice

A factory has several business units and is vertically integrated throughout most of its supply chain. One of the first ways the company moved in this direction was to purchase a Wholesale department where the Production department could directly sell its products. The Wholesale department purchases the final product from the Production department, packages the product, and then sells it to the external vendors. The results of this part of the operation are as follows: There is currently no external market for the Production department to sell its products, so all sales are from the 80,000 units sold to the Wholesale department. The product created by the Production department is very unique, and the Wholesale department cannot acquire it from another vendor or supplier. Assuming that the Production department uses the minimum acceptable transfer price, how much total variable costs are they incurring per unit once the Wholesale department sells overall?

A) $0.08
B) $0.44
C) $0.78
D) $1.14