The North Division of Barter Company makes and sells a single product, which is a part used in manufacturing trucks. The annual production capacity is 43,000 units and the variable cost of each unit is $49. Presently the North Division sells 39,000 units per year to outside customers at $60 per unit. The South Division of Barter Company would like to buy 22,000 units a year from North to use in its production. There would be no savings in variable costs from transferring the units internally rather than selling them externally. The lowest acceptable transfer price from the standpoint of the North Division should be closest to:

$20.00

$58.00

$60.00

$49.00

..............................................................................................................................

Division 1 of Ace Company makes and sells wheels that can either be sold to outside customers or transferred to Division 2. The following data are available from last month:

Division 1:

Selling price to outside customers	$70 per unit
Variable cost when sold to outside customers	$49 per unit
Capacity	34,000 units

Division 2:

Number of wheels needed per month	10,000 units
Price per wheel paid to an outside supplier	$65 per unit

If Division 1 sells the wheels to Division 2, Division 1 can avoid $4 per unit in sales commissions.

Suppose that Division 1 sells 24,500 units each month to outside customers. According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint of the selling division?

$46.05 per unit

$65.00 per unit

$47.50 per unit

$61.00 per unit

Given the following data:

Return on investment	24%
Turnover	2.7
Margin	9%
Sales	$120,000
Average operating assets	$45,000
Minimum required rate of return	16%

The residual income would be:

$8,400

$0

$3,600

$6,750

..................................................................................................................