Division M Makes a Part That It Sells to Customers

Multiple Choice

Division M makes a part that it sells to customers outside of the company. Data concerning this part appear below: $\begin{array}{lrr}\text { Selling price to outside customers } & \$ & 75 \\\text { Variable cost per unit } & \$ & 50 \\\text { Total fixed costs } & \$ & 400,000 \\\text { Capacity in units } && 25,000\end{array}$
Division O of the same company would like to use the part manufactured by Division M in one of its products. Division O currently purchases a similar part made by an outside company for $70 per unit and would substitute the part made by Division M. Division O requires 5,000 units of the part each period. Division M can sell every unit it produces on the outside market. What should be the lowest acceptable transfer price from the perspective of Division O?

A) $16
B) $25
C) $66
D) $75
E) $50