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HBD Inc. has two Divisions, Division A and Division B, both of which are investment centres with external markets. Division A produces a single component
HBD Inc. has two Divisions, Division A and Division B, both of which are investment centres with external markets. Division A produces a single component which is sells externally for $10 per unit. The component's variable costs amount to $5 per unit. Division B uses a component identical to the one A produces; however Division B sources these from an external supplier for $7 per unit. Division A is operating at 50% capacity while Division B's production is backlogged for several months. Divisions A and B each have a practical capacity of 100,000 units of output per period. The head of Division A approaches the head of Division B in an attempt to obtain a greater utilization of its plant facilities. The heads of both Divisions soon sit down to try to agree on a transfer pricing policy. Division B requires 50,000 components from Division A. Is it in the best interest of the entire company that the transfer takes place? Multiple Choice Yes, as this would result in an overall savings of $2 per unit. Yes, as this would result in an overall savings of $4 per unit. No, as this would result in an overall loss of $2 per unit. No, as this would result in an overall loss of $4 per unit
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